The dollar succumbed to record lows against the euro amid concerns about the long-term impact of the Federal Reserve?s recent efforts to inject money into a dried out credit market. In fact, traders were more susceptible when the FED took emergency steps to cutting its discount rate and opening up discount windows to major banks.

The greenback rallied on Tuesday after the FED stated that it would lend primary dealers $200 billion in Treasury securities and would accept a wider array of mortgage debt as collateral to ease tight credit conditions. However, those gains melted away like snow in the sun, as speculations ran wild that the FED intervention might not be enough to revive the credit markets and to stimulate the struggling US economy. According to analysts, the FED?s credit facility might not suffice with potential bad debts in the trillions. Consequently, the euro vaulted to historical high touching $1.5550.

In mid-week the dollar got another blow when news hit the market that Bear Stearns went on emergency financing. According to market players, New York Federal Reserve and JP Morgan Chase were to bail out the fifth largest investment bank in the US. This added no comfort to spooked investors who saw more credit turmoil to come and imminent US recession. The euro rose hitting other historical heights as it crossed $1.5688 levels before easing to $1.5669 toward the close of the session. Many economists believed that the dollar would remain on the ropes because the FED might have to do much more to ease market nerves either by cutting rates more aggressively or by injecting massive amounts of liquidity in the market. Futures markets were already pricing in a 50 percent chance that it could cut benchmark interest rates by more than a full percentage points to 2 percent.

Last Sunday, FED took drastic measures by cutting its discount rate and opened discount windows. In addition, market players noted the decision of JP Morgan Chase & Co. to buy Bear Stearns at rock-bottom price of $2 a share. The market was in a wait-and-see mode ahead of the FED policy meeting.

The US dollar traded at MUR 27.05 yesterday as compared to 27.41 last week.

Sterling gathered a lot of momentum on the back of a struggling dollar. It rose well above the $2 mark last week after the Bank of England left rates unchanged at its previous policy meeting. Negative dollar sentiment had helped the pound gained over 4 percent especially when market players were not expecting a fall in UK?s interest rates anytime soon.

The pound continued on its track as skepticism on the effectiveness of the liquidity boosting measures would cure US economic problems. In addition, the first budget from UK Finance minister Alistair Darling had no element of surprise. Darling, however, stated that UK growth would be negatively impacted due to the global credit crunch and would range between 1.75-2.25 percent for 2009.

The Sterling was traded at MUR. 54.17 as compared to MUR 55.01 last week.

The yen firmed against the US dollar as the latter fell across the board. In addition, the Japanese currency remained subdued to news that the Japanese government had nominated a former top finance ministry official, Koji Tanami, as the next governor of the Bank of Japan after Toshihiko Fukui retires on March 19.

The Japanese yen was traded at MUR. 27.85 as compared to MUR 26.97 last week.

<B>Vassan CALEEMOOTOO</B> <I>HSBC Mauritius Treasury and Capital Markets</I>