The greenback pulled itself up, after the Federal Reserve rate cut, from a 15-year lows against a basket of currencies as investors bet that the US economy would get a breath of fresh air. In fact, the FED cut benchmark federal fund rate by 50 basis points to 4.75 percent as a measure to boost liquidity in this credit squeezed market.

The FED action supported investors who resume carry trades as lower yield currencies were ditched in favor of the US dollar. Besides, positive sentiment about the US currency pushed all of the three major US indexes up. However, analysts believed that positive dollar sentiment would fade as soon as investors started to get bothered by the narrowing interest rates differential between the euro and the dollar.

Towards mid-week, things turned sour for the greenback as speculations flared that the FED might be cutting interest rates by another 25 basis points at its next meeting. A big sell-off started in Europe and continued later on in the New York trading session, as traders believed that lower benchmark rates would tarnish the allure of dollar-denominated assets. Consequently, the euro vaulted to an all time high of $1.40 and tested $ 1.41 levels. Even the remarks of FED chairman Ben Bernanke before the Congressional committee did not make a dent to quell the massive dollar sell-off. In fact, Bernanke warned Congress on Thursday that pushing the ceiling on the size of loans government-sponsored mortgage finance companies could buy might undermine market discipline. He also added that soft home prices and mortgage rate resets would mean that subprime adjustable-rate home loan would rise further. In other words, Bernanke believed that the market should be left to work it out on its own without the need for FED intervention.

<B>Price stability</B>

In contrast to the US, the European Central Bank stood by their hawkish rhetoric on the future path of the interest rates in the euro zone. In an interview, a French presidential aide stated that euro strength was hampering European competitiveness and business productivity. However, ECB President Jean-Claude Trichet brushed aside the remark saying that the ECB?s main task was to ensure price stability.

The US dollar traded at MUR 31.212 yesterday compared to MUR 31.570 last week.

Sterling remained bearish throughout the first part of last week trading sessions. It got some momentary support from the Bank of England Governor Mervyn King who stated, in front of the Parliament?s Treasury Committee, that cutting rates at the first sight of trouble was not the way out. However, toward the end of the week, the pound got a bust of energy when investors became more daring on their bets supported by positive data. In addition, savers stopped lining up in front of Northern Rock branches since the UK?s government guaranteed all deposits.

The Sterling was traded at MUR. 62.82 as against MUR 64.02 last week.

The Japanese suffered as investors used it as a source of cheap funds to buy higher-yielder currencies. Japanese remained steady buyers of foreign denominated assets and that trend would not be coming to an end anytime soon. Even the choice of Yasuo Fakuda as the next prime minister did not move the market much. Fakuda took over Shinzo Abe who resigned suddenly last month.

The Japanese yen was traded at MUR. 27.20 as against MUR 27.08 last week.

<B> Major data/events this week

■ <B>Wednesday 26 Sep. </B> US Mortgage index, Durable

■ <B>Thursday 27 Sep. </B> US GDP,

■ <B> Friday 28 Sep. </B> US Core Pce