Rupee assumed downward trend in the inter-bank market versus the dollar last week. However continued dollar inflows resisted any major fall in rupee value. Improvement in dollar demand by banks has put the local currency under slight pressure since the past few days.

The week opened on a negative note on February 17, when the rupee shed 2 paisa against the dollar to trade at Rs58.0 and Rs58.02 compared with Rs57.98 and Rs58.0 at the previous weekend close. The rupee lost another 4 paisa on February 18, as banks remained engaged in modest dollar buying. The declining trend continued throughout the week. The rupee shed another 7 paisa in the last three days. At the close of the week, the dollar was trading at Rs58.10 and Rs58.12. On cumulative basis, the rupee lost 13 paisa in the week.

In kerb dealings, the rupee traded in a narrow range amid fluctuations. The market experienced weak demand for funds in the early trading sessions. Later rising demand for dollar on fear of a war against Iraq, and also dollar buying by the central bank helped the dollar to recover. The rupee touched the week’s lowest level at Rs57.95 and Rs58.05 against the dollar on February 20 and the highest level at Rs57.75 and Rs57.85 on February 18. In the entire week the rupee lost 15 paisa against the dollar. At the close of the week the dollar was trading at Rs57.90 and Rs58.0.

Currency investors continued to invest in euro. The rupee had opened the week on a positive note versus the euro on February 17, gaining 5 paisa over the preceding week close of Rs62.05 and Rs62.35. But then it assumed downtrend and lost 105 paisa in the last four days. At the close of the week the euro was trading at Rs62.65 and Rs62.95, up 60 paisa against the rupee compared to previous weekend close of Rs62.05 and Rs62.35.

Against other major currencies at the inter-bank forex counter, the rupee last week gained ground against the British pound, the Danish and Norwegian krones, the Swedish krona and the Kuwaiti dinar. It weakened against the Canadian, Australian, New Zeal and Singapore dollars, the Japanese yen, the Chinese yuan, the Malaysian ringgit, the Saudi and Qatari riyals and the UAE dirham.

On the international front, investors bought back dollars on February 17 on signs that a march toward war with Iraq slowed after a weekend of antiwar demonstrations around the world and last week’s reports by the UN weapons inspectors. The dollar strengthened during Asian and European trading hours, gaining one per cent in value against the euro and Swiss franc, as war against Saddam Hussein’s regime appeared to be less likely in the next few weeks.

Analysts noted that a war premium against the dollar had not been removed despite a report from the UN’s chief weapons inspector Hans Blix that Iraq had increased its cooperation with inspectors. The euro traded as low as $1.0678 before rising back to $1.0735, still a loss of 0.50 per cent compared to previous weekend’s New York close. Analysts say the euro is likely to trade in a range between $1.0650 and $1.0850.

The dollar climbed to a one month high of 1.3797 Swiss franc before dropping back to 1.3698 francs, still a gain of 0.63 percent on the day. The dollar fell to 120.14 yen off 0.12 per cent. Analysts say the threat of intervention keeps the dollar steady versus the yen and a move toward 119.50 yen could bring more yen-weakening trades by Japanese financial authorities. Sterling hit a one-month low of $1.5973 on easing war concerns. Sterling recovered to $1.5993, still a loss of 0.92 per cent on the day.

Sterling has been underperforming for some time and it continues to do so because of a negative reaction to the UK’s role in the Gulf and the heightened sense of security. Against the euro it also lost a third of a per cent to 67.01 pence, bringing its losses this month to nearly three percent. Traders said volumes were thin due to the closure of the US markets for President’s Day. The dollar rallied as weekend global anti-war demonstrations and a report from the UN arms inspectors appeared to slow momentum towards war.

On February 18, the yen surged by more than one per cent against the dollar and euro after Japanese Finance Minister said currency values would not be discussed at an upcoming Group of Seven meeting. But Shiokawa’s remarks prompted speculation among traders that Japan, which last month engaged in clandestine yen selling in favour of dollars, would not want to engage in a potentially failing bid to weaken the yen ahead of the meeting or incur the disapproval of its global counterparts — particularly the United States — for manipulating the market.

With the yen also supported by additional talk that the Japanese investors were converting hefty US treasury coupon payments from dollars into yen, the Japanese unit traded at 118.90 yen versus the US currency, its strongest in three weeks and up one full per cent on the day. The euro fell the sharpest against the yen, tumbling 1.37 per cent from its previous US close to stand at 127.14 yen in late dealings and well below last week’s nearly 4-year high at 130.81 yen. Though the yen rose broadly traders expected Japan to intervene if the dollar falls below 117.50 yen. Recent interventions have been handled stealthily, leaving investors on constant guard for sharp price swings. Sterling fell across the board hitting a 3-1/2 year low versus the euro and multi-week troughs on the dollar and yen, as investor worries about the Britain’s economic and political prospects continued to rise. Concerns about the economic outlook have gripped the market since the bank of England’s surprise interest rate cut earlier this month, which fanned talk that the Bank itself war worried about Britain’s economic health. Sterling lost a quarter of a per cent to the euro setting a low of 67.32 pence, its lowest since mid-1999. It also hit a seven-week low on the dollar at $1.5903, before paring losses to $1.5920 and a four-week low on the yen at 189.20. The steady trickle of funds out of sterling has triggered several waves of stop-loss selling, further pulling the rug from underneath the pound. The sterling selling has brought the British currency down to levels widely seen as acceptable for euro entry in terms of the UK economic competitiveness. But public support for the euro continues to fall.

The dollar fell broadly on February 19 tumbling to a three-week low against the yen as concerns about a possible war with Iraq resurfaced in markets after a brief respite. Investors have sold the dollar on concern the United States could launch a unilateral military offensive against Iraq without the sanction of the United Nations. As Washington has tried without success to wing the backing of reluctant allies, those fears have become more amplified.

The dollar bought 118.60 yen its lowest level in three weeks and 0.27 per cent lower on the day. Traders said fear that Japan could step into markets to sell its own currency helped contain the dollar’s losses. European currencies have been the primary beneficiaries of the US currency’s weakening trend. In late US trading, the euro traded at $1.0752 against the dollar up 0.60 per cent from its previous US close. The dollar traded at 1.3670 Swiss francs down 0.65 per cent from its previous US close. Though sterling fell to a 3-1/2 year low against the euro at 67.38 pence, it rose 0.40 per cent on the day against a broadly weaker US currency, changing hands at $1.5963.

Sterling fell to a 3-1/2 year low versus the euro for the second day running as worries mount over UK economic health and political prospects in the wake of the government’s support for a war with Iraq. The UK currency has already lost more than three percent this month on a trade-weighted basis, following the Bank of England’s shock rate cut earlier in February that fanned economic concerns. The pound set the new low at 67.38 pence per euro after lingering just on February’s 18 3-1/2 year lows throughout the session.