Hot and cold winds blew on the greenback as it tried to claw back gains against the European currency. In fact, significant drop in oil prices as well as improved confidence in the US financial sector caused the dollar to strengthen against the euro. However, towards the end of the week, concerns about the slowing US economy and the limitation of the Federal Reserve to raise interest rate resurfaced causing the demand for the US currency to fall.

Oil prices traded at least $20 below the month peak of $147.27 and continued its decline following US crude inventory data. This encouraged traders to cover short dollar positions. On the other hand, the US House of representatives was expecting to vote on a measure that would help the housing sector to recover from its worst downturn since the Great Depression of the 1930?s. This news caused the dollar to climb to $1.5671 against the euro.

However, the US currency got a splash of cold water when a Federal Reserve survey of economic conditions, the Beige Book, showed that price pressures were rising or increasing across the United States in recent weeks while the pace of economic growth had slowed. According to economists, that Beige Book was supporting the view that stagflationary tendencies occurred in both inflation and growth categories and that the FED might get squeezed in a credit crunch environment.

The greenback closed the week receiving blows from disappointing news in the US housing sector and steep losses on Wall Street. According to the National Association of Realtors, US existing home sales fell in June to a 4.86 million-unit annual rate.

● <B>The US dollar was traded at MUR 27.23 same as last week</B>

Sterling had a nice ride throughout most part of the week getting support from Bank of England minutes which showed arch hawk Timothy Besley, a policymaker, had actually voted for a 25 basis points rate hike. Figures for June UK consumer prices rose to their highest in at least 11 years, while retail price index hit a 15-month high, indicating that inflation continued to rise as energy and food prices surged. This caused the pound to vault to a session high of $2.0025. However, many analysts were skeptical that the sterling would be able to sustain those gains as the UK?s economy had showed signs of sufferings. The deteriorating housing market continued to negatively impact UK?s economy and contributed to a slowdown in growth.

● <B>The pound sterling was traded at MUR 54.25 compared to MUR 54.49 last week</B>

The Japanese yen continued its slow depreciation against the US dollar as the latter gather support from dropping oil prices and a rebounding US stock market. Accordingly traders ditched the yen to cover short dollar positions. However, the yen seemed to be capped at 108.00 yen as Japanese exporters fully intended to sell the dollar at this level.

● <B>The Japanese yen was traded at MUR 25.31 compared to MUR 25.54 last week</B>

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

Wednesday 30 July: US Mortgage index

Thursday 31 July: US Jobless Claims, retail sales

Friday 01 Aug: US N-F payroll

Monday 04 Aug: US Durable

Tuesday 05 Aug: US Redbook

<B>Vassan Caleemootoo HSBC Mauritius Treasury and Capital Markets</B>