November 6, 2002	Wednesday	Sha’aban 30,1423

KARACHI, Nov 5: After more than three-and-a-half months the euro on Tuesday again crossed parity with the US dollar both in the international as well as in Pakistan market.

Senior bankers said the single European currency rose to 1.004 in the world market. As a result the euro-rupee parity in the inter-bank market here closed at Rs58.84 slightly higher than the dollar-rupee parity of Rs58.74. Some bankers said the intra- day high for the euro was Rs58.96.

“It was just the reflection of the rising euro in the world market,” said treasurer of a local bank. Reports from the world markets said the euro gained due to talk of rate-cut by the Fed plus an improvement in export data of the eurozone. Bankers here said since the euro-rupee parity is worked out using the US dollar as a reference rate this also made the euro dearer against rupee.

This is for the second time that the euro has crossed parity with the US dollar. The single European currency had earlier flew past the dollar in mid-July this year but had failed to sustain this level.

Analysts are divided on whether the euro can now sustain the above-par parity with the US dollar, but they do agree that even if the euro falls below par value of the dollar it will now be trading above 98 cents level. They say one of the reasons for the euro crossing parity with the US dollar has been the shifting of dollar-denominated funds by Arabs into euro accounts. This trend started immediately after 9/11 when the US government tightened controls over bank deposits held by the Arab and sub-continental Muslims in particular and of all others in general. The trend picked pace in the backdrop of the US policy towards Iraq that was seen by the Arab world as arbitrary.

Local businessmen say they are opening more letters of credit in euro than in the past for two reasons. The eurozone buyers are demanding them to do so and they too believe that in order to secure more business from eurozone they must transact deals in euro rather than in the US dollar. This also is creating a demand for euro in the inter-bank market. But in the absence of any substantial physical dealing in the single European currency the US dollar is still being used as a reference currency to fix the exchange rate of euro vs the rupee.

RUPEE GAINS: Meanwhile the rupee gained 12 paisa against the US dollar in the inter-bank market here. Senior bankers said the rupee closed at 58.74 against the previous close of 58.86. They said the rupee went up on increased inflow of foreign currencies from overseas Pakistanis and from the exporters.