The dollar wrestled to remain afloat against the Japanese yen in the midst of intensified speculation that China would soon revalue the yuan. The Japanese currency was bolstered by the words of a chorus of US officials including the Federal Reserve Chairman, Alan Greenspan, who called on China to relax its peg to the greenback. The yen also got a lift when Japanese Prime Minister Junichiro Koizumi apologized to Chinese population for Japan World War II atrocities.

Any revaluation of the Chinese currency would most likely propel the currencies of China?s trading partners. Due to trade links, other Asian countries effectively interconnect their currencies; if the yen rose, Asian central banks would be freed from the artificial weakening of their currencies against the dollar while keeping their exports competitive vis-a-vis China.

Buying the yen is a popular proxy bet on the near-term move by China to make its currency regime more flexible, and investors have snapped up the Japanese currency since Chinese officials, in a flurry of comments, stated that China is better prepared to lose the peg.

Global economy prospects

Yesterday, the Japanese currency was offered at MUR 27.83 compared to MUR 27.45 for the previous Tuesday. The euro was the biggest loser of the week. In fact, the euro/dollar was plagued by negative sentiment probably due to the EU referendum and weaker IFO survey.

Traders cited a raft of excuses for the euro weaknesses, including dovish German business confidence survey and persistent worries over the implications of a negative vote in the France?s referendum on the EU constitution next month. Consequently, many traders had chosen to stay on the sideline on Monday, opting to wait for clearer signs on global economic prospects.

The US economic data flow gets heavier later this week with reports on consumer confidence, durable goods, and the personal consumption expenditure price index ? the favored Federal Reserve inflation gauge. A reading of the first-quarter US gross domestic product should be of interest to dollar bulls, although market analysts are already starting to mull prospects for the second quarter.

Against the Mauritian rupee, the US dollar was trading at MUR 29.2906 as compared to MUR 29.3107 last week.The sterling rose to seven-month high against the euro on Monday as a broad-based slide in Europe?s single currency overshadowed bearish data on the UK housing market. House prices in the UK edged down for a 10th successive a month in April and was lower that a year ago on a glut of unsold properties, according to a house survey. In addition, the market was still looking for clues in the interest rate outlook. In fact, the market believed that there was a better chance of a hike in the UK?s interest rate than one in the euro.

Yesterday, the pound was trading at MUR 56.05 against MUR 55.82 last Tuesday.

Major data/events this week:

■ Wednesday 27 Mar US Mortgage Indx, durable goods

■ Thursday 28 Mar US Jobless Claims, US GDP

■ Friday 29 April EZ cons sentiment, US Michigan final, Chicago PMI

■ Monday 02 April US Consumer Spending

■ Tuesday 03 April US Fed rate, Durable goods

Contribution by HSBC