The dollar went through a roller-coaster ride as it clang to most of its gains after sessions of winning streaks ridden by market confidence that the Federal Reserve (FED) would keep pushing the US overnight interest rates higher at this week’s meeting. Robust data and the hawkish stance of Bernanke’s testimony particularly fondled dollar bulls.

An upbeat view of the US economy from FEDChairman Ben Bernanke and data showed big jump in core producer prices in February, revived expectations that the FED would raise interest rates to 5 percent by May of this year and had perhaps more in store. This sudden shift in policy’s outlook catapulted two-year treasury yields up 9 basis points to 4.74 percent, the largest one day jump since last July. However, the market became extremely sensitive to shifting expectations on how long would the tightening policy of the FED continue.

Consequently, investors scrutinised upcoming data to reassure themselves about their bets; hence, sensibly increasing dollar’s vulnerability. The US currency tumbled in mid-week as a weaker-than-expected housing report cubed market expectation on further greenback-boosting hikes. Furthermore, a government report indicated that sales of US homes experienced its biggest plunge in nearly nine years.

More worries started to pile upon on the dollar, as the market mulled over the weight of the US trade deficit. At that point an upside impetus looked slim. Many currency strategists conjectured whether the greenback’s negative reaction was the harbingers of a turning point lower for the currency, which bolstered to 15 percent against the euro and yen in 2005, but which navigated in tight ranges for the first quarter of this year. Against the Mauritian rupee, the dollar was trading at MUR 30.959 compared to MUR 30.929 last week.

The Sterling got stuck in the starting block, losing momentum as a dovish inflation data offered no or little clues to the direction of the British currency. The UK’s inflation rate rose for the first time in five months in February to meet the Bank of England’s goal of 2.0 percent per annum.

The Office of National Statistics revealed that the consumer prices rose to 0.3 percent last month, moving the weighted average for the year to 2.0 percent, hitting the Central Bank’s target for the first time since June 2005. However, that created little or no splash on the currency market. According to analysts, this level was seen as a neutral zone from a monetary policy perspective and did not support the Sterling.

Toward the mid week, Finance minister Gordon Brown’s speech stabilized the pound when he stated that budgetary and economic growth forecasts were in line with expectations. This was a strong clue that an interest rate cut might not be happening anytime soon. This expectation was reinforced when only Stephen Nickell voted for a British interest rate cut at the Monetary Policy committee. Yesterday, the pound was trading at MUR 54.54 as against MUR 54.62 last Tuesday.

During the trading sessions in Asia last week, market players were awaiting comments from BOJ Policy Board member Shin Nakaha. Many saw Nakahara as the most dovish of all the BOJ’s board and suspected him of being the lone dissenter against ending quantitative easing two weeks ago. According to analysts, the BOJ might lift rates to 0.25 percent or 0.5percent by year-end, after the central bank ditched its ultra-loose policy of flooding the banking system with liquidity. However, BoJ officials stated that they intent to keep short-term rates low especially in time of tame inflation.

Yesterday, the Japanese currency was offered at MUR 26.75 same as the previous Tuesday.

<B>Major data/events this week:</B>

■ <B> Wednesday 29 March </B>

US Mortgage Indx

UK GDP

■ <B>Thursday 30 March</B>

US jobless claims, GDP

■ <B>Friday 31 March</B>

US Core Prices

■ <B>Monday 03 April </B>

JP Tankan

■ <B>Tuesday 04 April</B>

EZ PPI

<B>Contributed by HSBC

Vassan Caleemootoo</B>