New Orleans, the historical city of jazzy music, saw desolation, distress, and pain after the passage of hurricane Katrina. The US dollar felt the blow as it nose-dived against major currencies throughout most part of the trading session of last week. The damage caused by the hurricane was estimated at around $ 25 million according to insurance experts.

Oil production in the northern Gulf coast refineries was seriously hampered and could take some time to come back to normal. Crude oil prices soared to unprecedented highs at $ 70.80 a barrel last week. Higher energy costs plagued the US dollar and instigated concerns amongst traders that the Federal Reserves might not hike up US interest rates in the coming months as expected.

The market was entirely dependent on growing expectation fuelled by a potential rise in the US interest rates. Consequently, US economic growth plunged as consumer spending slowed down. The Chicago producer-manufacturing index fell to 49.2 for the month of August, well below market forecasts of 61.5. The US institute supply management index was 53.6 in August as opposed to 56.5 in July. The US dollar was traded at a 3 month low of 1.2590 against the single European currency. Towards the end of the week the US dollar clawed back some gains as the US employment report showed a positive growth in the jobs sector for previous months.

The dollar traded at MUR 30.02 and the EUR at MUR 37.62 as against 36.72 last week.

Yen swings against the major currencies

Sky-high oil prices fuelled negative yen sentiments leading to a selling-off of the Japanese currency. For countries like Japan who imported all of its oil, a rise in energy prices, would have devastated effects on its manufacturing sector and economic growth. However, the slide in the yen was mitigated by the polls on the upcoming election.

The media polls showed firm support for the Japanese Prime Minister Junichiro Koizumi’s party. Furthermore there was growing speculation that the Chinese yuan would be revalued for the second time after China had loosen the yuan peg to the dollar.

The Japanese yen was considered to be a proxy to the yuan. In addition, the Nikkei stock average figures rose to a fresh 4-year high on Monday and the Japanese Finance Ministry survey showed that the Japanese firms’ capital spending rose in the April –June quarter compared to the previous year despite surging oil prices.

Yesterday, the yen was sold at MUR 27.15 as compared to MUR 27.21 last week. The British pound rose last week due to strong UK producer manufacturing data that went above 50 last month. The Market is now awaiting key economic data such as the UK Manufacturing index and the UK trade balance this coming week to find clues as to where the currency is heading. The pound rose from $ 1.7830 to a high of $ 1.8484 against the dollar last week.

Yesterday, the Sterling was trading at MUR 55.35 as against MUR 53.85 last week.

Major data/events this week :

■ Wednesday 7 September: </B> US Mortgage index, US Redbook