Last week trading on the currency market saw the dollar weaken against the European single currency, trading at above $1.2300. The greenback eased, as investors remained uncertain about the near-term outlook for the US economy amid higher oil prices. Higher oil prices are US dollar-negative as they act as a tax on consumption by soaking up disposable income, thus hitting consumer sentiment, spending, and ultimately economic growth. Oil prices hit a record high on Monday as worries about the stability of supplies from Iraq, Nigeria and Russia compounded concerns about US fuel stocks. US light crude was also a few cents short of August’s all-time peak of $ 49.40 a barrel. However, dollar loss was kept in check after the Federal Reserve’s upbeat comments on the economy, in minutes released on last Thursday. With significant US data releases later in the week, the market will try to gauge the US growth outlook and the likely pace of future interest rate rises.

Against the Mauritian rupee, the euro was trading at MUR 35.45 as compared with MUR 35.08 a week earlier.

Over the week, the dollar touched a six-week high against the yen, trading at 111.40 yen. Weakness in Tokyo’s stock market and strength in global oil prices kept the Japanese currency on the defensive. Japan’s dependence on oil imports makes the country’s economy and its currency highly vulnerable to rising energy costs. Furthermore, Tokyo’s Nikkei stock market average fell to record its longest losing streak since December 2002. With few immediate factors to trade on, market will await Japanese economic data due later in the week, including the Bank of Japan’s quarterly “tankan” business sentiment survey on this coming Friday.

Yesterday, the Japanese currency was offered at MUR 25.90 as compared to previous Tuesday’s exchange rate at MUR 26.28.

Sterling jumped briefly to a five-week high against the dollar at $1.8118 after weak US data cast doubt on the pace of future US interest rate rises. News of an unexpected drop in US durable goods orders in August triggered the pound’s rally. In recent weeks, the sterling had been under pressure as data had shown Britain’s booming housing market and consumer spending slowing after five interest rate hikes since November. As a result the market had scaled back expectations for future UK rate hikes beyond the current level of 4.75 percent.

Yesterday, the pound was trading at MUR 52.21 as against MUR 51.45 last Tuesday.

Major data/events this week:

Wednesday 29 Sept

UK GDP, US GDP

Thursday 30 Sept

Eurozone Consumer and Industrial

sentiment

US Jobless Claims, US NAPM, US Chicago PMI

Japan Tankan

Friday 01 Oct

US ISM Manufacturing

Monday 04 Oct

Eurozone PPI & Retail Sales

US Durable Goods

Tuesday 05 Oct

<B>Contribution by HSBC</B>