LAST WEEK trading on currency market saw the dollar posting its biggest weekly decline in six months against the European currency. Several factors were behind the sluggish performance of the dollar. Positioning in the market indicated that short-term market players had accumulated long dollar position in the past two weeks.

Disappointment over the dollar?s failure to extend gains on strong US employment data led to unwinding of long US position against the euro. Moreover, dollar was burdened by a moderately disappointing US trade deficit number. The US trade deficit widened in September to $41.3 billion as the strengthening economy propelled imports from China and the rest of the world to record levels.

The trade shortfall was slightly higher than the consensus forecast of $40.5 billion. Escalating tensions in Iraq further dampened sentiment against the dollar. The situation in Iraq highlighted concerns in investors? minds about the gaping US trade and current deficits, because of the costs of the war, and the potential pressure on capital investment flows. The monthly US military costs in postwar occupation of Iraq is estimated at about $3.9 billion. Furthermore, the increasingly positive data coming out of Europe also added to the greenback misery.

Germany?s influential ZEW index of investors expectations on last Tuesday jumped more than expected to 67.2, a 16-month high, boosted by September orders. If European data continue to improve, the euro zone may well be the next region that delivers the most growth in the next month or so.

Euro at RS 33.65

Against the Mauritian rupee, the common currency was trading at MUR33.65 as compared with MUR33.18 a week earlier.

By contrast, the dollar firmed to probe one-week high against the Japanese yen. The yen was hit by the sharp fall in Japanese share prices. Japan?s stock market dropped below the 10,000 level for the first time since August. Yen-buying from foreign investors to buy Japanese shares had been a major factor behind the yen?s rise this year. Further worsening the already weak market sentiment was a report that al Qaeda network was planning car bombings against the United States and its allies, including Japan.

Yesterday, the Japanese currency was offered at MUR26.30 as compared to MUR 26.42 last Tuesday.

Sterling rose to a 1-1/2 week highs versus the dollar, but hit a three-week lows against the euro and several other currencies. The pound was weighed down by a somewhat cautious Bank of England inflation report. Bank of England appeared to indicate that British interest rates would rise again after the 6th November hike, the first in almost four years. But it also said that risks to economic forecasts were on the downside, tempering some bullishness that the next hike would be soon.

Yesterday, the pound was trading at MUR48.41 as against MUR 47.92 last Tuesday.

• Major data/events this week:

Wednesday 19 November ? Japan International Trade

Thursday 20 November ? German GDP, UK Retail Sales, US Jobless Claims

Friday 21 November ? BOJ report

Monday 24 November ? German CPI

Tuesday 25 November ? German Ifo Index

Contribution by HSBC