Investor?s woes had not improved, as fears of tougher credit conditions continue to crimp economic growth worldwide. Investors were seen disposing risky assets while purchasing lower-yielding but safer currencies.

The greenback continued its slow decent after the minutes form the Federal Reserve (FED) policy meeting showed that the central bank might be intervening to loosen monetary policy in the event market conditions worsen. High volatility in financial markets had fuelled speculation that the Federal Reserve might cut its benchmark interest rate, after it reduced the discount rate at which banks borrowed directly from the FED by 50 basis points to 5.75 percent earlier this month. Given such speculation, traders were awaiting a speech on ?Housing and Monetary Policy?? by Fed chairman Ben Bernanke on Friday. The focus on interest rates had changed as analysts were eyeing monetary policy in the euro zone. According to economists, European monetary growth had accelerated and labor market conditions continued to be solid prompt most likely further ECB interest rates hike next week. Towards midweek safe-haven flow had stabilized the dollar and investors had re-shuffled their portfolio by reducing risky assets and increased investments into US Treasuries.

For next week a slew of economic data and key events could trigger wild volatility in the market. The attention of many economists would be on the US payroll reading for August. This would give clues to investors on how much the subprime mortgage debacle had infected the economy and employment.

The US dollar traded at MUR 31.772 on Tuesday compared to MUR 31.601 last week.

Sterling had some seesaw sessions thru most part of last week trading. With no hard core British data available, the pound took its cue from increased risk aversion of investors for high-yielder like Sterling. The UK?s currency regained a bit of its composure as investors took profit on the dollar. In addition, the absence of fresh news stabilized the market and gave support to the pound. However, Sterling could not hold its position for long as heightened risk aversion, due to a fall in the US equity market, pushed investors to ditch carry trades. Sterling remained weak for most part of the week despite the US president George Bush announced its proposal to support subprime mortgage borrowers at risk of default.

The Sterling was traded at MUR. 64.16 as against MUR 63.41 last weekThe yen had some happy times as investors, rattled by stock market sell-offs and strained financial markets, unwound carry trades. Japanese stock market, the Nikkei share average, dropped 2.6 percent tracking the losses in US equities early last week. Speculators who had used the low-yielding yen as a cheap source of fund to buy higher-yielding currencies in carry trades, made sharp reversal of positions once volatility from the US credit meltdown flared up.

The yen was sold at MUR 27.42 as compared to MUR 26.60 last week.

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

■ <B> Wednesday 05 Sep. </B> US Mortgage index, Redbook ■ <B>Thursday 06 Sep. </B> US Jobless claims, GDP GB BoE rate EZ ECB rate ■ <B>Monday 10 Sep. </B> GB PPI ■ <B>Tuesday 11 Sep. </B> GB Trade

<B>Vassan CALEEMOOTOO HSBC Mauritius Treasury and Capital Markets</B>