Dollar suffered some set backs as it succumbed to poor sentiments on constant worry that the Federal Reserve might eventually cut rates. It slid for most part of last week trading sessions as investors were looking at payroll data for clues to predict the future path of the US currency.

Trade throughout the week was thin as people were more conservative ahead of the Easter holidays. This caused the euro to rise as high as $1.3442 on the electronic trading platform EBS after triggering automatic buy orders above $1.3410. The greenback rallied, as if it snacked upon some energy capsules, after surprisingly strong job report reinforced the view that the FED would not be cutting interest rates anytime soon. US non-farm payroll grew to 180 000 jobs compared to economists’ forecast of 120 000 jobs. Besides, the US government revised upwards its estimate for jobs created in both January and February by 16 000. The solid March job reports eased concerns about the softening of the US housing market and signs of softness in US manufacturing. On the other hand, the European Central Bank was expected to keep interest rates in the euro zone on hold. However, analysts believed that the ECB would be hiking up borrowing cost sometimes in June and would potentially hike it up again before the year-end. Although, for the time being dollar headwinds remained intact, the euro zone growth differential would tend to be dollar negative. This argument pushed analysts to believe that dollar strength might be short-lived.

The next key event the market would be watching closely would be the minutes of the Federal Open market Committee’s March meeting due this Wednesday. The minutes should point out why the reference to the future of the monetary policy tightening had been omitted in the accompanying statement for the last FOMC meeting. Against the Mauritian rupee, the dollar was trading at MUR 32.751 yesterday compared to MUR 32.852 a week earlier.

The yen inched up at the start of the week as traders took profit on gains in other currencies. However, the yen wobbled throughout the week as Japanese institutional investors had started to sell the yen at the start of the Japanese fiscal year and channeled fresh asset allocations overseas in search of higher yields.

The yen got a breather when the high-yielding Australian dollar plunged after the Reserve bank of Australia held rates at 6.25 percent against market expectations. The yen progression seemed to have been capped by a rally in the Nikkei Share average, as the market remained tilted towards riskier strategies such as carry trades. According to analysts, yen weakness would persist ahead of the Group of Seven finance ministers meeting this week. Against the Mauritian rupee, the yen was trading at MUR 27.52 as compared to 27.87 same as a week earlier.

Sterling started the week bullying other major currencies while expectation grew rampart that the Bank of England might hike up UK’s interest rates by 25 basis points from 5.25 to 5.50 percent within the week. Robust economic indicators like housing data and growth in various sectors were enough to weather another interest rate tightening. Growth in British construction sector accelerated to its fastest pace in nearly three years in the first quarter. Besides, profitability of UK firms, outside the financial sector, rose to record high in the first quarter. However, the pound nose-dived after the Bank of England decided to keep interest rates on hold at 5.25 percent. Many analysts did believe that the Bank of England might keep rates on hold but that there would be potentially one more hike before the year-end. Against the Mauritian rupee, the Sterling was trading at MUR 64.45 yesterday as compared to MUR 64.99 a week earlier.

Vassan CALEEMOOTOO</B> Contributed by HSBC</I>