The US currency rose against other major currencies after the Federal Reserve raised US interest rates by 0.25 % for the 11th consecutive time since June 2004, to 3.75 % as expected by market participants.The Fed’s intention to contain inflation by adopting a tighter monetary policy had not been distracted by the recent destructions caused by the Hurricanes Katrina and Rita.Traders expected a few more rate hikes by the end of this year; hence, fueling the purchase of US denominated assets.

As the interest rate differentials between the euro and the dollar widened, foreign investors were ready to invest in dollars as against the European currency. The Federal Reserve’s optimism in the US economic outlook underpinned the US dollar.According to the latter, the damages caused by hurricane Katrina negatively impacted the Greenback momentarily and would fade in the long term.In fact, both hurricanes spared the Texas oil refineries and did not hinder the supply of crude oil. The refineries were back to production and helped keeping oil prices down; hence bolstering the US dollar.

<B>Yen dips</B>

The dollar traded at MUR 30.25 and the EUR at MUR 36.52 as against MUR 30.14 and 36.80 respectively last week.

The Japanese yen went down the slide due to the widening interest rate differentials when compared to the US dollar.The Japanese investors’ tendency to buy more of foreign denominated bonds before the financial year-end closing of 30th September, triggered a drop of the Yen against the US dollar.The market’s prediction was that the dollar could reach levels of 113-114 yen in the short term if the trend continues.

Furthermore, the G7’s meeting last week, showed appreciation that China revalued the yuan and did nothing to pressure China for some more revaluations, hence dismissing further speculation on the Chinese Yuan.

The yen being the proxy currency of the yuan would also loose its grip in the trading market whenever the pressure on the yuan decreases.However, the Japanese manufacturers were more confident in the business conditions in Japan and the exporters may start to sell the US dollar at the ranges of 112.50 and above bringing a halt to the downslide.

<B>The UK pound falls</B>

Yesterday, the yen was sold at MUR 27.01 as compared to MUR 27.25 last week.

The Sterling fell against the US dollar due to weak UK data amidst a seemingly robust US economy.Rising US interest rates would close the gap vis-à-vis British rates as the market expected some further cut in the UK rates to enhance UK’s economic growth. According to the Bank of England’s policy maker Stephen Nickell, the UK economy may not recover as strongly as expected despite lower interest rates.

Yesterday, the Sterling was trading at MUR 53.66 as against MUR 54.49.

<B>Major data/events this week :</B>

■ <B>Wednesday 28 September :</B> US Durable goods,

■ <B>Thursday 29 Septembe:</B> US jobless claims,

■ <B>Tuesday 4October : </B> US Red book .

<B>Contributed by HSBC</B>