LAST week trading on the currency market saw the dollar ending the week against the European single currency on a bearish tone, and taking a breather from its recent rally. The dollar softened against the common currency as investors had second thoughts about whether the United States would raise interest rates in the near term. Until last Friday, speculation in the market had been growing that US interest rates might rise from a 46-year low of 1.0 percent as early as May or June. However, the release on last Friday of a raft of disappointing US data, which showed consumer sentiment index coming in below forecasts, and US March industrial production falling might just have been enough for the time being to temper any Fed tightening speculation.

Furthermore, remarks from Richmond Federal Reserve President Alfred Broaddus that the Fed was still some way from seeing conditions for a rate hike also dented the dollar. Earlier during the week, the dollar had rallied to a 41/2 month peak against the euro. Upbeat employment, sales and manufacturing data, a narrowing trade deficit and inflationary pressure had all bolstered expectations the Federal Reserve might raise US interest rates. This week market will be cautious ahead of Federal Reserve Alan Greenspan testimony before the Senate Banking Committee and the Joint Economic Committee today.

Against the Mauritian rupee, the common currency was trading at MUR 32.91 as compared with MUR32.64 a week earlier.

Geopolitical risks

Over the week, the greenback advanced against the yen as Japanese investors spent fresh funds on foreign assets and amidst expectations that the US Federal Reserve would raise interest rates sooner than earlier projected. The market was little moved by news of the release of three Japanese hostages in Iraq, while the fate of two more Japanese civilians was still unknown. Finance Minister Sadakazu Tanigaki said that Japan would monitor the economic impact of geopolitical risks, but added that he thought the market could withstand such developments.

Yesterday, the Japanese currency was offered at MUR 25.43 as compared to MUR 25.81 on the previous Tuesday.

Sterling spent most of the week at the mercy of the dollar sentiment, which firmed considerably throughout a recent run of data suggesting the US could soon start on a long awaited cycle of interest rates hikes. The pound recovered some ground after disappointing US data came out on last Friday. This week market will have some domestic UK factors to inspire trade, especially today?s release Bank of England meeting minutes. Investors will scour the minutes for clues as to why the BOE?s Monetary Policy Committee kept interest rates on hold earlier this month and whether anything could derail a widely expected hike next month.

Yesterday, the pound was trading at MUR 49.61 as against MUR 49.85 Tuesday before.

Major data ? events this week:

? Thursday 22 April US Jobless Claims

? Friday 23 April UK Retail Sales

			US Durable Goods

? Monday 26 April German Ifo Index

? Tuesday 27 April US Redbook, Consumer Confidence

			Euro Zone Balance of Payments

Contribution by HSBC