December 24, 2001	Monday	Shawwal 8, 1422

Trading remained suspended in the inter-bank market as well as in the kerb for three days on account of Eid-ul-Fitr. However, when the market opened on the fourth day, trading remained dull as post-holiday mood prevailed.

Virtually no activity was seen in the interbank market on December 21, the first day of the trading. There was no demand for dollar, which traded at Rs60.60 and Rs60.65, up 15 paisa over the previous weekend close of Rs60.75 and Rs60.80 on December 15. Slight revival in trading activity on December 21, led to a marginal rise in the demand for dollar putting the rupee under pressure. The rupee lost 5 paisa and traded at Rs60.65 and Rs60.70 at close. Sufficient supply of dollar restricted a steep fall in rupee value. Over the previous weekend close, however, the rupee still shows an appreciation of 10 paisa against the dollar.

Against other major currencies the rupee at the inter-bank forex counter displayed strength, after staging a sharp recovery over the British pound, German mark, euro, Canadian, Australian, New Zealand, Hong Kong and Singapore dollars, Swiss, French and Belgian francs, Dutch guilder, Italian lira, Austrian schilling, Norwegian and Danish krones, Swedish korna, Spanish peseta, Japanese yen, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and the UAE dirham.

In the kerb, the rupee lost 5 paisa for selling, while buying rate remained unchanged amid mixed trading on December 21, when trading resumed after three days closure for Eid-ul-Fitr. The dollar traded at Rs60.70 and Rs60.80 during the most part of the session on the fourth day before closing at Rs60.75 and Rs60.90 against the previous weekend close of Rs60.75 and Rs60.85. However, slight increase in demand on December 21, pushed the rupee down 10 paisa against the dollar, which traded at Rs60.85 and Rs60.95 at close.

The international financial markets will remain closed for Christmas holidays next week. There is expected to be very little activity in the local market. The rupee is likely to show a mixed trend. Active trading is expected in the local currency market after December 26. In the past six months the rupee has appreciated against the dollar by 5.7 per cent in the inter-bank market and by 9.6 per cent in the kerb. The gap between the inter-bank market and the kerb had almost vanished last week. However, at the close of this week it was still showing a gap of 20 paisa. In July the gap was in the range of Rs3.0 - Rs2.60.

In the international financial markets, the yen hit a fresh three-year low against the dollar and a two-year low against the euro on December 17 amid further indications from Japanese policy-makers that the would not stand in the way of the currency’s fall. Haruhiko Kuroda, Japan’s top financial diplomat, said he was unconcerned by the yen’s fall - which took the currency to a low of Y128.03 against the dollar.

The weakness of the yen also provided support for the euro against the dollar. The euro ended up just under half a cent higher against the dollar at $0.905. At the start of each of the past three years banks have been virtually unanimous that the euro would be higher at the end of the year. While the euro’s main problem has been structural outflows, over optimism by foreign exchange professionals has not helped. Traders have been in too much of a hurry to buy the currency the moment it showed signs of recovery. As a result there has often been little follow-through buying and rallies fizzled out. This year could be different.

On December 18, the yen fell to a three-year low for the third consecutive trading day, as Japan’s finance minister added to pressure on the country’s central bank to relax monetary policy further. The dollar hit a new three-year peak of Y128.4. But it later fell back to trade fractionally below Y128. The euro failed to build gains, when it had pushed as high as $0.908 against the dollar. But analysts said its failure to break through the technically important $0.908 level had caused it to fall back to below $0.90.

Over the past three years the euro has ended the year on a strong note and then fallen back in early January. There is a risk that January will again be a weak month for the euro this year. As the yen fell to a new three year low against the dollar on December 18, other Asian currencies also came under pressure. The yen’s weakness has already provoked a warning from South Korea that its monetary authorities were keeping a close eye on Japan’s exporters, who compete in many of the same markets.

On December 19, the yen slipped against the euro in thin trade on weighed down by the Bank of Japan’s decision to ease monetary policy once again, but it ended virtually flat against the dollar. The euro firmed to around 115.64 yen from about 115.30 before the announcement. It had been bid around 115.30 in late New York on December 18. The greenback was drifting at around 128.18 yen.

The dollar had earlier touched a high of 128.43 yen after a Jiji newswire report quoted Thomas Shiller, Standard and Poor’s country head and managing director for Japan and South Korea, as saying the US rating agency was likely to downgrade Japan by one more notch. The euro wavered against the dollar throughout the day, ending the afternoon at around $0.9022, compared with $0.9029 in late New York.

Sterling lost nearly half a per cent against the dollar tracking the broadly weaker euro down in a seasonally thin market of London. sterling edged down to $1.4500 from $1.4568 in late New York trading on December 18. Against the euro, it stood steady at 61.95 pence. Sentiment towards sterling became less buoyant as the pound trimmed recent gains against the yen having risen without pause for more than nine sessions to 2-1/2 year highs, gaining more than 11 yen. Sterling showed little immediate reaction to data showing UK goods trade deficit slightly widened to 2.314 billion pounds in October from 2.253 billion in September.

On December 20, the yen was pinned to fresh three-year lows as the bank of Japan (BoJ) delivered its latest gloomy assessment of the economy. The dollar held at 128.50/55 yen having earlier raced to a fresh three-year high of 128.80 following a break of an option barrier at 128.50.