The dollar consolidated on Tuesday morning in Asia after rising sharply on Friday following surprisingly upbeat employment figures. Non-farm payrolls rose 57,000 versus an expected fall of around 30,000 whilst unemployment remained unchanged at 6.1%, versus an increase of 6.2%. Concerns about intervention by the Japanese authorities to weaken the yen also kept the dollar well-bid, indirectly providing some support against the single currency. The greenback has been under considerable pressure during the week prior to the release of the payrolls figures. Survey data was negative, including a key US consumer confidence survey and the Chicago Purchasing Management Index of manufacturing activity.

The Institute for Supply Management non-manufacturing index was also soft whilst US factory orders fell 0.8% in August after rising 2.0% a month earlier. Market sentiment towards the dollar thus remains bearish and indeed analysts wondered whether Friday?s reaction to the jobless data would not be short-lived.

Further souring sentiment were sparse comments by officials across the Atlantic who did not seem to be overly bothered with the greenback?s decline. An unnamed European Central Bank official was quoted on the news wires last week saying that a gradual euro rise to $1.20 is acceptable. Comments by outgoing ECB President Duisenberg and US Commerce officials suggest no heightened level of concern about the falling dollar. In fact on Monday in New York, Duisenberg was quoted saying in a newspaper that the dollar decline was ?unavoidable?. Against the Mauritian rupee, the common currency was trading at MUR 33.93 as compared to MUR 33.62 a week earlier.

The yen was mirred within 3-year highs against the dollar on Tuesday morning in Asia but concerns of intervention by the Japanese authorities kept the Japanese currency in leash. Traders were cautious about testing the authorities? resolve to dampen the yen?s rise after the latter intervened loudly last Tuesday in the market to sell yen against the dollar. Tuesday?s intervention was cause for concerns as it was conducted through the US Federal Reserve Bank of New York. For some analysts this was taken to mean that the US authorities might be tacitly endorsing Japan?s intervention. Japan conducted a record 13.5 trillion yen of yen-selling intervention in the first nine months of this year to prevent the yen from derailing an export-driven recovery of the economy.

In terms of events, on Oct 16th, US Treasury Secretary Snow testifies to the Senate Banking Committee on currency market manipulation. If Japan is not cited, it could help lift the dollar against the yen. But the focus will quickly shift to the APEC meeting on Oct. 20-21, which will allow Asia to respond to the G7 demand for flexible currencies. The speculation of a Chinese/Hong Kong re-valuation is likely to peak ahead of that meeting, though analysts do not expect a change in the Chinese or HK currency regimes over the next 12-18 months. Yesterday, the Japanese currency was offered at MUR 26.16 as compared to MUR 26.12 on last Tuesday.

Sterling traded near three-month highs versus the dollar on Tuesday, taking its cue from the dollar bearishness. Different survey evidence also lent support to the pound. The Confederation of British Industry reported a surge in business confidence amongst UK financial services companies this year. The CIPS/Reuters index of service sector activity rose in August, its fastest pace since April 2000. Buoyancy in the mortgage sector also pointed to renewed home purchases by Britons.

Given the raft of upbeat economic indicators, speculation has been growing that the UK may hike interest rates sooner than later. The Bank of England Monetary Policy Committee meets this Wednesday and Thursday for a decision on interest rates. The UK benchmark interest rate is currently at a 48-year lows of 3.5 percent. Yesterday, the pound was trading at MUR 48.57 as against MUR 48.32 on last Tuesday.

Contribution by HSB