THE rupee lost its month-long stable trend this week in the inter-bank market as the dollar regained strength towards the close of the week. However, it broke Rs58 barrier in the kerb touching new highs.

The euro continued to display strength over the rupee. After breaking Rs63 barrier last week, it remained fluctuated in a narrow range this week.

In the inter-bank market, the rupee opened the week on a positive note and gained 7 paisa in first three days trading versus the dollar as there was sufficient supply of dollar to meet mounting demand. Consequently, the rupee/dollar parity reached week’s highs at Rs58.07 and Rs58.08 on January 29, against the previous week’s close of Rs58.14 and Rs58.15 on January 25. The euro remained in demand throughout this period. Most currency leaders were investing in the euro.

However, in the last two trading sessions, the rupee lost its strength over the dollar. Heavy dollar buying by local banks in the inter-bank market in the last two days exerted pressure on the rupee which shed 20 paisa against the dollar. The exporters went in the sideline on dollar recovery in the international market, creating short supply in the local market. The dollar traded at Rs58.26 and Rs58.30 on January 31, up 12 paisa for buying and 15 paisa for selling against the previous weekend’s level.

In the kerb, the rupee continued to show a stable trend. It broke Rs58 barrier against the dollar on January 29, touching new highs at Rs57.95 for buying. At the close of the week on January 31, the dollar was trading at Rs57.95 and Rs58.0, down 10 paisa versus the rupee against last week close. The euro remained volatile in the kerb amid fluctuations. The rupee touched week’s lows against the euro at Rs63.00 and Rs63.30 on January 29 before gaining 30 paisa at the end of the week. On January 31, euro was quoted at Rs62.70 and Rs63.0, down 10 paisa against the rupee as compared to previous weekend close of Rs62.80 and Rs63.10.

Against other major currencies, the rupee at the inter-bank foreign exchange counter extended losses versus the British pound, Canadian and Hong Kong dollars, Chinese yuan, Malaysian ringgit, Saudi and Qatari riyals and the UAE dirham. However, it regained strength over the last week against Australian, New Zealand and Singapore dollars, Swiss franc, Danish and Norwegian krones, Swedish krona, Japanese yen and Kuwaiti dinar. In the international financial market, the dollar fell to its weakest level in three years against the euro on January 27, marking its 8th consecutive session of losses as a UN report of weapons inspections in Iraq heightened concerns of a unilateral US military strike. Traders remain acutely sensitive to any news on Iraq and are eager for any inkling war could be avoided. That was demonstrated early in the session when the dollar moved higher on speculation.

The dollar’s weakness has drawn a qualified welcome by the European authorities, who have watched with frustration for years as an overvalued dollar sent their single currency ever lower. But signs emerged that some of the euro-euphoria could be waning. Meanwhile, fear Japan could sell yen in markets remained an ever-present possibility, especially given the weak state of the Japanese economy.

In late US trading, the euro traded near $1.0850 against the dollar, below session highs above $1.09, but its highest since October 1999 and up 0.30 per cent from its prior US close. Many analysts expect the single currency to test its psychological barrier of $1.10 within the next few easy. The dollar bought 1.3523 Swiss francs moving off a new 4-year low at 1.3461 francs and down 0.10 per cent from its prior US close as some traders took profits. Against the yen, the dollar surged as high as 119.29 yen but profit-taking took it back nearly a full unit to stand near 118.40 yen in late US trade, up half a per cent on the day.

Sterling strode above $1.64 for the first time in three years as concern over Washington’s reaction to a report by the UN weapons inspectors in Iraq prompted another broad based slide in the greenback. But the pound pared gains in late European trade as investors who had bet on further declines in the dollar were wrong-footed just minutes before senior UN weapons inspectors were due to deliver their progress report to the Security Council. Sterling rose as high as $1.6411 in the European mid-session as investors piled on the sell-dollar bandwagon, knocking the greenback through key technical levels. But it eased back to $1.6330 after the dollar shot higher across the board. Sterling’s action against the euro was just the reverse, falling close to last week’s 3-1/2 year low at 66.50 pence before recovering.

On January 26, the dollar rose as investors took comfort from a reaffirmation of the US strong dollar policy by Treasury Secretary-designate John Snow. Uncertainty over snow’s position had put pressure on the dollar, even though few believed he would stray far from the administration’s line. The dollar has fallen more than 20 per cent against the euro in the last year and 17 per cent against a trade-weighted basket of currencies, but the white House has embraced a policy of what most traders refer to as benign neglect. The dollar gained about two-tenth of a per cent against the euro to $1.0824 per euro and a third of a per cent versus the Swiss franc to 1.3567 francs. The dollar’s gains against the euro came despite encouraging economic data from Germany, the euro zone’s largest economy. But the dollar was helped in its rise against the Swiss franc by comments from Swiss National Bank chairman who said the bank could intervene in the market if the franc rose too much on market exuberance. The dollar rose 0.21 per cent against the Japanese yen to 118.62 yen. The dollar also got some help from a smaller-than-expected fall in consumer confidence in January and a hefty rise in new home sales for December.

Sterling clung to its recent three-year highs on the dollar even as the greenback fought back against other currencies, as a mix of profit-taking and stop-loss trades carved an upward path for the British currency. After pocketing an advance of nearly half a per cent on the euro, the pound rose also on a trade-weighted basis, cementing its recent rebound from seven months lows. Global currency markets, including sterling, are now consumed by geopolitical news, scouring headlines for hints on whether or when the United States might launch an attack on Iraq. There is a lot of dollar short covering but less in the dollar/sterling. Sterling traded firm on the day at $1.6400. The euro was down half a per cent on the pound at 66.05 pence. Analysts attributed a lot of the pound’s buoyancy to technical factors, including profit-taking and stop-loss trades on euro/sterling, which hit a 3-1/2 year high last week.

On January 29, dollar traded in a choppy range first selling off on a hawkish speech by US President George W. Bush, only to pare its losses on news the Federal Reserve had opted to keep interest rates unchanged. In New York, the dollar was off by about a tenth of per cent against the euro at $1.0835 per euro but well off session lows of $1.0899 touched overnight in response to Bush’s state of the nation speech. The dollar also was 0.17 per cent lower against the Swiss franc at 1.3551 francs well above the day’s lows of 1.3477 francs.