The dollar ended the week on a firm footing yesterday, boosted by prospects of widening interest rate differentials in favour of the US. While the Federal Reserve is widely expected to hike US base rates by a quarter percent next week, expectations for a cut in euro zone interest rates mounted sharply yesterday after the Swedish central bank aggressively cut its base rate by 50 basis points to a new historic low of 1.5%. The Riksbank at the same time downgraded its growth forecast for the Swedish economy, stating that the risk for inflation was on the downside.

This added gloom to the prospect of the euro zone economies as a whole. Coming on the heels of the EU leaders’ failure to adopt a seven-year budget and the rejection of the EU constitution by France and Netherlands, mounting pressure for a rate cut by the European Central Bank sent the euro near recent eight-month lows hit last week near the 1.2000 level.The dollar had a brief bout of weakness following poor trade deficit data released on Friday. The US trade deficit swelled to USD 195.1 billion in the first quarter compared to economists’ forecasts of USD 190 billion and an actual deficit of USD 180 billion in the final quarter of last year.

<B>Negative data released</B>

Against the Mauritian rupee, the Euro sold at 35.99 compared to 35.87 in the previous week. The USD was offered at 29.56 against 29.49 a week earlier.

The Yen initially strengthened against the dollar due to a pack of negative economic data released in Japan last week, rising from 109.72 to the dollar to 108.83. It also benefited from the negative impact of the huge US trade deficit number.

However, the dollar’s gains against the Japanese currency were kept in check by Japanese exporters’ selling the greenback.The yen sold at MUR 27.21 compared to MUR 27.32 last week.

The Sterling benefited from growing speculation of a cut in euro zone interest rates, which underscores the pound’s interest rate advantage.

UK interest rates stand at 4.75 percent and the Bank of England is expected to keep rates unchanged in the near term. Despite recent weak UK data, Bank of England’s Governor Mervyn King signaled earlier this week that the Central bank is not sure to cut interest rates.

The British currency actually overrode weak UK economic data and gained against both ethe euro and dollar. It was hovering around $ 1.8220 USD at time of writing yesterday. The GBP sold at Mur 53.99 compared to Mur 53.39 last week.

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

■ <B>Wednesday 22 June </B> U S Mortgage index

■ <B> Thursday 23 June </B> U S Jobless claims, Home sales data

■ Monday 28 June </B> French business climate, U S Redbook