January 28, 2002	Monday	Ziqa’ad 13, 1422

It was a dull week for the local currency market. Lacklustre conditions prevailed in both the inter-bank market as well in the kerb. Major investors kept themselves on sidelines. The week opened on a negative note.

The rupee shed 2 paisa on January 21 in the inter-bank market where the dollar traded at Rs60.20 and Rs62.23 in the absence of any major development. However, dollar buying by major Pakistani banks to meet immediate payments pushed the rupee down 8 paisa on January 22, when the dollar was quoted at Rs60.28 and Rs60.30. But it was short-linked as the rupee managed to recover the following day. Heavy dollar-selling by exporters improved the dollar supply on January 23, which helped the rupee gain 8 paisa and revert to the week’s opening-day level of Rs60.20 and Rs60.23 against the dollar. Lack of dollar-buying interest once again pushed the rupee down by 2 paisa on January 24, amid selling pressure. The dollar traded at Rs60.22 and Rs60.24, during the day. The rupee finally ended the week unchanged on January 26, amid dull activity.

Against other major currencies at the inter-bank counter, the rupee managed to hold ground versus the British pound, euro, Swiss franc, Japanese yen, Danish and Norwegian krones, Swedish krona, Malaysian ringgit and the Kuwaiti dinar. It, however, lost ground against the Canadian, Australian, New Zealand, Hong Kong and Singapore dollars, Chinese yuan, Saudi and Qatari riayals and the UAE dirham.

The rupee in the kerb remained stable after opening the week unchanged on January 21 and traded at previous weekend level of Rs60.80 and Rs60.90. It gained 10 paisa on January 23 amid sluggish business in the absence of any major developments on the economic and political front and traded at Rs60.70 and Rs60.80 against the dollar. It did not show any change on January 24 and ruled stable at Rs60.70 and Rs60.80 for the second consecutive day. On January 25, the rupee buying-rate remained stable showing no change over the previous day’s level. However dollar-selling pressure supported the rupee which gained 5 paisa for selling in modest trading. The dollar was quoted at Rs60.75 for selling.

The present trend in the rupee/dollar parity is likely to persist in the coming weeks. No major development is expected in the near future. Activity in the currency market will remain sluggish with major investors to remain on sidelines. During the week as a whole the rupee shed 4 paisa in the inter-bank market but gained 10 paisa for buying and 15 paisa for selling in the open market. The gap between the two rates has narrowed from 62 paisa last week to 48 paisa this week. Over the past 12 months, while the rupee in the inter-bank marked depreciated by Rs1.03 it appreciated by Rs1.05 in the kerb. The gap between the inter-bank and open market rates was to the tune of Rs2.57 a year ago.

In the international financial markets, prospects for the dollar in 2002 are dimming despite an improved US economic outlook, with the euro, sterling and Canadian dollar all forecast to make gains this year while only yen weakness persists. Dollar-weakness would come as the US economy emerges from the recession and the Federal Reserve pauses after cutting interest rates 11 times in the past year. The central bank could possibly even start raising borrowing costs by mid 2002.

Investors are likely to diversify out of overweight dollar portfolios and into European assets where the bond market, will be more attractive. European debt securities have more room to advance since recovery in Europe is likely to come more slowly, whereas a quick rebound in the United States bears with it the risk of rising inflation. The one currency pair where the US unit is seen making headway this year is dollar-yen. Japan toppling into its fourth recession in a decade helped start the yen’s tumble versus the dollar. The yen was sold with increasing magnitude, losing 15 per cent from September 21 to January 18 as investors took the apparent nonchalance of Japanese officials toward the currency’s drop as a signal to sell.

The yen is seen at 135.91 by year-end’ down from the current rate of 132.66 yen, which is a 39-month low. This is a significant weakening from last October’s survey, when analysts forecast a 125.24 yen by year-end 2002. As for the British pound, economic prospects and higher interest rates are expected to make sterling ever more attractive to investors.

On January 21, the dollar came under selling pressure in Tokyo though dealers emphasized the retreat had more to do with a lack of liquidity than any deterioration in sentiment. With the US off for Martin Luther King Day, profit-takers again held sway and the dollar receded to an intra-day low of 132.05 yen from 132.75 in early Asia. Dealers reported some frustration at the dollar’s failure to break past 133.00 yen and 88 cents on the euro.

The euro took advantage of thin trading conditions to edge ahead near $0.8870 from $0.8841 in New York previous weekend close. It was sidelined on the yen, standing at 117.12/23 yen from 117.11. The dollar had stretched as high as 133.03 yen only to stumble when Bank of Japan governor declared his support for a strong yen and said the ministry of finance was not tolerating a weak currency.

In London, a call by a forecasting group for Britain to push its currency lower spurred much debate but little price action in foreign exchange market and sterling was steady ahead of key economic data later this week. The independent ITEM Club called on the Bank of England to intervene to curb the pound’s strength and ease pressure on Britain’s recession-hit manufacturers. It said the bank could weaken sterling by as much as 10 per cent without jeopardizing its inflation target, as inflationary pressures are extremely tame. Both the government and the Bank of England have repeatedly ruled out any artificial devaluation of the pound. Sterling has shed more than one per cent against the dollar and roughly half a per cent against the euro since the start of the year. The pound stood at $1.4355, a touch softer on the day but up half a cent from last week’s one-month lows. It was little changed against the euro at 61.50 pence.

The yen was harried to three-year lows against the dollar on January 22 as a determinedly bearish market chose to interpret a one-line comment from the Treasury secretary as an invitation to dump the currency. The dollar duly darted as high as 133.82 yen, easily clearing its former peak at 133.37 and taking it to levels not seen since October 1998. The euro also leapt ahead to 117.95 yen from ] 17.05 late in New York on January 21, but was sidelined on the dollar at $0.8826 from $0.8832.

Sterling fell around half a per cent against the euro and the dollar in London after a senior Bank of England official said it was overvalued against the single currency. It fell through support at 61.80 pence per euro to hit a one-week low of 61.93. The pound also fell against the dollar through support at $1.43, hitting a one-month low of $1.4259 before bouncing up to $1.428O.

The yen was und