November 18, 2002	Monday	Ramazan 12, 1423

Trading sentiments in the currency market continued to be depressed. Dollar demand is persistently low amid increased dollar selling by the overseas Pakistanis and local and foreign banks.

Due to weak dollar, investors are buying euro instead of dollar or investing in stocks. In the outgoing week, the rupee maintained it firm trend versus the dollar in the inter-bank as well as kerb trading. Though demand for dollar by foreign banks emerged in the inter-bank market on November 11, the dollar supply was enough to resist any pressure on the rupee and the parity remained intact at the previous weekend close of Rs58.71 and Rs58.73.

The rupee, however, failed to maintain its firm trend on November 12, as a slight increase in dollar demand pushed it down against the dollar shedding 2 paisa to trade at Rs58.73 and Rs58.75. Excess dollar supply resisted any sharp fall in rupee value. The rupee weakness on November 12, proved short lived. Heavy dollar selling by exporters increased the inflows from Pakistani expatriates and the dollar selling by banks in the remaining trading sessions during the week helped the rupee to make sharp gains on November 13, onward. In the last three days a 23 paisa gain was recorded against the dollar. At close, the dollar was trading at Rs58.50 and Rs58.52 in the inter-bank market.

Almost a similar trend was observed in kerb trading, where the rupee had gained 15 pasia against the dollar on the opening day of the week (November 11) at Rs58.50 and Rs58.60. The rupee continued to make advances over the dollar in the remaining period of the week, and gained further 25 paisa to close at Rs58.20 and Rs58.30, up 45 paisa versus previous weekend close of Rs58.65 and Rs58.75 on November 8.

Against the euro, rupee lost 30 paisa on the very first day of trading when the rupee traded at Rs59.05 and Rs59.35 a euro. But in the remaining trading sessions, the rupee managed to gain ground over the European single currency. Despite emerging euro demand the rupee gained 63 paisa more in the remaining days. At close the euro was trading at Rs58.42 and Rs58.72.

Against other major currencies the rupee at the inter-bank forex counter lost ground versus the Swedish krona. It, however, managed to display strength over the Canadian, Australian, New Zealand, Hong Kong and Singapore dollars, the British pound, the Swiss franc, the Danish and Norwegian krones, the Japanese yen, the Chinese yuan, the Malaysian ringgit, the Saudi and Qatari riyals, the Kuwaiti dinar and the UAE dirham. In the international financial market, dollar sentiment has been deteriorating as the market factors in a series of sell signals, including an increasingly likely war between Iraq and the United States, interest rare spreads and a widening current account gap in the United States. The dollar racked up another series of multi-month lows against major currencies as renewed worries over possible US war with Iraq dented a greenback already undermined by economic woes. The dollar gained mildly against European currencies and slipped against the yen in thin holiday trade on November 11 as dealers focused on position squaring and awaited more definitive news on Iraq. The foreign exchange market was thinly traded with treasury and debt markets closed for the US Veterans Day holiday. The dollar slipped modestly against the yen, trading down 0.14 percent at 119.59 yen and keeping the market on guard for yen-selling intervention by the Bank of Japan. What happens in Iraq is still a factor that is likely to be pulling back on the dollar, but the market was less a story of fundamentals and more one of position taking after the dollar’s big declines last week. The dollar had fallen to fresh lows against a number of currencies overnight as concerns over the US economy continued to weigh on the currency. The dollar fell to a 3-month low against the euro for a fifth straight session before steadying during New York hours. But by late afternoon in New York, the dollar was off about two-tenths of a percent a $1.0104 per euro. Overnight, the dollar dipped below 1.44 Swiss francs for the first time since July. But the US currency steadied to 1.4477, up 0.32 percent on the day. The dollar also tumbled to a 2-1/2 year low against sterling overnight at $1.5967. But the pound couldn’t hold those gains, and was down 0.28 percent versus the dollar at $1.5868 in the New York afternoon. Sterling even more than the euro has benefited from the yield play after the US Federal Reserve last week slashed interest rates by a half-point while both the Bank of England the European Central Bank stood pat on rates. With the market focus firmly on movements in the dollar, the market largely shrugged off UK producer prices data which highlighted the general absence of inflationary pressures in the pipeline. Sterling had risen as high as $1.5967, on top of near three-cent gains made last week. Later it trimmed its gains to $1.5904. Against the euro it held steady at 63.61 pence. The pound began its rally last week when the US Federal Reserve’s half-point rate cut widened its rate premium over the dollar to 275 basis points. On November 12, the dollar held steady at nearly four-month lows against the euro as dreadful German economic data dampened dealers’ desire for euros but failed to provide a good excuse to buy dollars. The euro fell briefly to session lows against the dollar after the German ZEW institute’s economic expectations indicator collapsed to 4.2 in November, far below the previous month’s 23.4 reading. The euro was up 0.12 percent against the dollar at $1.0119 between session peaks at $1.0136 and lows at $1.0067. The dollar was little changed at 1.4473 Swiss francs. Sterling rose modestly to $1.5877. The dollar also is having a difficult time above 119.80 yen, where there seems to be dollar selling from a variety of names, including Japanese exporters. The yen has risen from 126 yen per dollar on October 21 to roughly 119.50, raising fears in Japan that the stronger yen would choke off export growth, putting its recovery in peril. The dollar was flat against the yen at 119.58 yen just above two-month lows scored on November 11. On November 13, the dollar pushed further away from multi-month lows hit earlier this week after news Iraq accepted a UN resolution on weapons inspections sparked dollar buying, especially against the Swiss franc. The dollar shot up nearly half a centime against the safe-haven Swiss franc after Iraq said it unconditionally accepted a tough UN resolution that offered Baghdad one last chance to disarm or face possible military action. It also posted gains against other currencies. By late New York trading, the euro was off about half a percent against the dollar at $1.0079. The dollar has been losing steadily against the euro and other currencies as falling US interest rates encourage investors to look for higher-yielding assets overseas. Sterling one of the high-yielding currencies which has made tracks against the dollar recently, eased 0.23 percent to $1.5859 even as the Bank of England dampened speculation for interest rate cuts with a cautious quarterly inflation report.

The dollar rallied 0.80 percent against the Swiss franc to 1.4550 francs. The dollar rose 0.35 percent against the yen to 120.09 yen. The dollar staged a broad-based recovery in Asia on November 14 as chances receded of an imminent war between the United States and Iraq, and caution over Japan’s financial situation was renewed.