?The dollar is going to have to fall between 50 and 80 percent,?? Pretowitz, president of the Economic Strategy Institute in Washington, said at the Asian Development Bank?s meeting in Hyderabad, India. Immediately, US policy makers started to pile up the blame on the global trade imbalances and the huge US current account deficit due to China?s unwillingness to artificially prevent its currency from appreciating. The G7 meeting?s outcome was interpreted by the market as a weakening US dollar instead of a revaluation of the Asian currencies. Weaker than expected, US economic data coupled with rising oil prices fuelled expectations amongst market participants that the US Federal Reserve Chief might be ending his tightening policy. Analysts projected a US current account deficit figure of around 70 billion US dollars per day for the month of April, higher than that of March 06. Trade data, expected to be released on 12th May 06 would impact the dollar greatly as the market was bracing itself for an end of the US tightening policy. US payrolls rose by only 138 000 in April as against forecasts for a 200 000 rise, sparked a slide in the dollar and underscored the expectation of an end of the interest rate hike cycle. In addition, rumors of other countries diversifying their currency reserves out of the US dollar left dollar bulls edgy. With negative dollar sentiment prevailing, the US currency started losing ground across the board. Against the European single currency, the US dollar fell to a one-year low of $ 1.2765 on Friday.

On the other hand, the European Central Bank?s chief, Jean-Claude Trichet, clearly indicated that eurozone?s economic policy would be very vigilant regarding inflation. His comment prompted traders to brace for an interest rate hike as soon as June this year did.

The US dollar traded at MUR 30.989 yesterday same as last week.

The Sterling peaked on Friday to a one-year high of 1.8654 against the US dollar. This was due to the combined effect of the widespread negative US dollar sentiment and various positive UK economic data. Leading mortgage lender Halifax announced a 2 percent rise in British house prices in April ? their biggest monthly jump in two years and the Bank of England (BoE) recorded the biggest rise in mortgage lending in 2-1/2 years in March. These led market participants to believe that BoE would not be in the urgency to cut UK?s interest rates. The BoE kept interest rates at 4.50% in its meeting last week and all the economic indicators pointed towards an interest rate hike in the future.

Yen?s rally against the green back

The Sterling was traded at MUR 57.96 as against MUR 57.30 last week.

The Japanese currency hit an eight-month high of 111.60 against the US dollar in the last week?s trading session. Japan celebrated the Golden week as from last Wednesday and opened for business only on Monday. A top US treasury official suggested that Japan should refrain from intervening in the currency markets and that all key economies should let market forces set exchange rates. The G7 advocated an appreciation of the Asian currencies and urged China to revalue its yuan, in order to correct global monetary imbalance.

The Japanese Officials were wary of the excessive volatility in the foreign exchange market as Japanese yen was often traded as proxy for the Asian currencies, mainly the Chinese yuan. Finance Minister, Sadakazu Tanigaki said that Japan?s stance was unchanged, meaning that they had no intention to intervene although they were keeping a close watch on the market and may hike the short term interest rates to suck in the excess liquidity.

The yen was sold at MUR 28.00 as compared to MUR 27.59 last week.

MAJOR DATA/EVENTS THIS WEEK :

■ Wednesday 10 May : US Mortgage index and US Fed rate.

■ Thursday 11 May :
US Jobless claims, GB Industrial production index.

■ Friday 12 May :
US international trade figures.

■ Monday 15 May :
US Cap net flows.

■ Tuesday 16 May :
US Redbook, US PPI.

HSBC Mauritius Treasury and Capital Markets