Vassan Caleemootoo
2 April 2008
Port Louis — The US currency did nothing surprising and slid after a batch of poor economic data reinforced investors' views that the credit crisis that had fractured the US financial sector was far from being undone. Market players were more likely to concur that further FED interest rates cut could be expected.
The housing report was greeted with minimal fanfare and many analysts believed that the US economy was not emerging from its downturn. In fact, durable goods reports did nothing but created more concerns on the state of the US economy and fuelled expectations that the FED would cut interest rates from the current 2.25 percent as soon as at its next monetary policy meeting. Data released last week, showed new orders for long-lasting US goods declined 1.7 percent last month and a key gauge of companies' appetite for investment also contracted. Rate futures were pricing in a 40 percent chance of a 50 basis points rate reduction as opposed to a 28 percent chance last week. Furthermore, a 25 basis point cut had already been priced in. This caused the euro to rise by 0.7 percent against the greenback to $1.5736.
Towards mid week, the dollar got a brief moment of positive sentiment after a tepid FED auctioned to swap poor-performing investments with the view of pumping liquidity into the market. Total bids for the FED's $75 billion Term Securities Lending Facility, or TSLF, was only $86.1 billion of bids. This showed that the market was not too desperate for liquidity after all. The TSLF formed part of a liquidity campaign by the Federal Reserve to rescue the distressed financial sector which had so far suffered over $120 write-downs.
However, dollar gains did not last long as a drop in US shares threw a stick in the greenback's wheel. Immediately, traders dumped the US currency and bought the euro. This situation further aggravated when news hit the market that Citigroup, Wachovia Corp, and other US banks were likely to announce dividend cuts in April. On the other hand, hawkish comments from European Central Bank Governing Council member Axel Weber diminished hopes that the ECB would be cutting rates in the near future.
The US dollar traded at MUR 26.73 yesterday when compared to 27.05 last week.
Sterling navigated within tight waters during last week trading sessions. The pound succumbed against the greenback as dovish comments from the Bank of England policymakers stated their inclinations towards cutting interest rates in the UK in the near term. BoE policymaker Charles Bean stated that negative sterling sentiment would persist due to the size of the UK's current account deficit. In addition, BoE governor Mervyn King stated that inflation in the UK was rising at approximately 3 percent, but also added that the central bank would be predisposed to cut interest rates from the current 5.25 percent.
The Sterling was traded at MUR. 53.03 When compared to MUR 53.46 last week.
The Japanese yen firmed against the greenback as Japanese exporters and institutional investors repatriated overseas earnings and investments before Japan's fiscal year-end. However, many Japanese traders stayed put and reduced their bests making liquidity in the market thin with high volatility.
The Japanese yen was traded at MUR. 26.78 When compared to MUR 27.07 last week.
Major data/events this week:
Wednesday 02 Apr: US Mortgage index
Thursday 03 Apr: US Jobless EZ retail Sls
Friday 04 Apr:
Monday 07 Apr:
Tuesday 08 Apr: US Redbook
HSBC Mauritius Treasury and Capital Markets
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