March 17, 2003	Monday	Muharram 13, 1424

The currency market witnessed dull activities last week. As clouds of war looms over Iraq, the dollar continued to lose ground versus major currencies in the world.

In response to world market trend, the dollar weakness also prevailed against the rupee in the local currency market. At the moment it seems that the American currency has lost all its charm. Currency traders appear less interested in investing in dollars. In the inter-bank market, the rupee opened the week unchanged on March 10 and was quoted at Rs57.89 and Rs57.90 amid thin activity.

On March 11, the dollar lost 9 paisa on buying counter and 12 paisa on selling counter due to the lack of demand and easy dollar supply giving further strength to the rupee, which traded at Rs57.80 and Rs57.82 against the dollar. On March 12, however, slight increase in dollar demand, ahead of two days public holidays on account of Muharram pushed the rupee slightly down by 3 paisa. The local banks were seen buying dollars to cover their short term position. As a result of dollar recovery the rupee-dollar parity was quoted slightly higher at Rs57.83 and Rs57.85. The trading remained suspended on March 13 and March 14 being public holidays.

When trading resumed on March 15, the dollar was trading at Rs57.75 and Rs57.95 at the NBP counter, up 3 paisa versus the rupee on slight increase in dollar demand in thin trading activity. In kerb trading also the rupee-dollar parity moved in a narrow band, amid lack of interest in dollar buying. The rupee opened the market on March 10, losing 5 paisa on the selling counter to trade at Rs57.90 and Rs57.95 against the dollar. The buying rate remained unchanged. On March 11, the rupee recovered 10 paisa for buying and selling to trade at Rs57.80 and Rs57.85. It did not show any change on March 12 and the parity remained stable on March 11 level, amid low activity ahead of public holidays.

Against the euro the rupee showed 15 paisa gain during the entire week closing at Rs63.40 and Rs63.70. Earlier it had opened the week on march 10, unchanged from its previous weekend close of Rs63.55 and Rs63.85. As far as other major currencies are concerned, the rupee at the inter-bank forex counter displayed strength over the British pound, the Canadian, Australian, New Zealand, Hong Kong and Singapore dollars, the Swiss franc, the Japanese yen, the Danish and Norwegian krones, the Swedish krona, the Malaysian ringgit, the Chinese yuan, the Kuwaiti dinar, the Saudi and Qatari riyals and the UAE dirham.

In the international financial markets, the dollar neared a four-year low against the euro and a seven-month trough versus the yen on March 10, with traders focused on the increasing possibility the United States will wage a unilateral war against Iraq. The United States and Britain are pressing for the support of uncommitted members of the UN Security Council for a new resolution that will pave the way for a military strike to disarm Iraq. But Russia and France have openly wielded the threat of a veto against any measure that leads to war.

In the late US trading, the euro traded around $1.1052 against the dollar up 0.42 per cent from its prior US close and a fraction of a cent from its strongest level since February 1999 at $1.1067. The dollar barely held above a 4-year low against the Swiss franc, trading near 1.3245 francs. Against the Japanese currency, the dollar traded at 116.78 yen down 0.25 per cent from its previous US close and less than half a unit from last weekend’s seven-month low. The euro hit 69.27 pence, a four-year high versus sterling, but traded lower to stand near 69.03 pence in late dealings, up 0.55 per cent on the day. Sterling moved lower against the dollar, trading at $1.6002.

On March 11, the dollar rose modestly against major currencies as continuing diplomatic negotiations over a possible war against Iraq afforded the US currency a brief selling respite. With France and Russia threatening to wield their UN Security Council veto power against any resolution that authorizes a military strike against Iraq, the United States and Britain delayed a vote on their resolution to authorize military force to disarm Iraq by march 17.

Though the postponement only prolongs the uncertainty that knocked the dollar to 4-year lows against the euro and Swiss franc, dealers say any move that delays a unilateral strike by the US is marginally dollar-positives. But few view any rise in the US currency as sustainable. The euro briefly touched a four-year high of $1.1084 in the European session, but pulled back even as US equity markets traded erratically. In late trade, the single currency held near $1.1034, down 0.17 per cent from previous day’s New York close.

The dollar traded around 1.3290 Swiss francs above a new four-year low at 1.3232 set during London trading and up 0.30 per cent from its previous US close. The dollar bought 117.10 yen up 0.25 per cent on the day and just above last week’s near seven-month low at 116.34 yen. Traders have been dissuaded from buying the yen too aggressively, even in the face of dollar-weakness, amid fear Japan could sell its currency to stem its strength. The dollar found limited support from a report in Japan’s Nihon Keizai Shimbun business daily that Tokyo was prepared to steady the domestic stock market by introducing measures that could include further monetary easing and yen-selling intervention of about 1.0 trillion yen a day.

Sterling paused for breath edging up on the dollar and rising from previous day four-year lows on the euro, after a surprise rise in the UK January manufacturing data helped brighten investor sentiment. But the dark clouds continue to cast a shadow over the battered UK currency as markets fret over the looming war with Iraq and the damage it could do to Britain’s Labour government. The pound traded at 68.80 pence, up a quarter of a per cent on the day. Against the dollar, sterling was at $1.6058, 0.25 per cent up since late New York trade.

On March 12, the dollar gained against the euro as the US and Britain appeared to be gaining pivotal support in a diplomatic push for a new UN resolution authorizing a military strike against Iraq. In a listless session in which dealers grasped for news to trade on, the dollar moved higher amid reports that the United States was drawing close to securing the votes of the UN Security Council’s non-committed nations for a new resolution that would set the stage for an invasion of Iraq.

Analysts say a US-led war without the UN backing would be negative for the dollar. The euro shed half a cent from its London trading high to trade around $1.10 versus the dollar, down 0.40 percent from its prior US close and more than 2/3 of cent from earlier day’s 4-year high. The dollar traded near 1.33 Swiss francs, up half a per cent from its previous US close and above the 4-year low it hit at 1.3224 on March 11. The dollar’s rally started after a report, subsequently denied, that Osama bin Laden had been captured. That in turn helped trigger stop-loss trades that boosted the dollar even more. However, “the market is already so very heavy against the dollar that it is going to take something really significant to push the currencies (even) higher against it. Wariness that Japan may enter markets to sell yen to keep the dollar supported at 117.30 yen, up nearly 0.21 per cent on the day.

Sterling shot up on march 12 reaching three-week highs on the dollar and gaining almost half a per cent on the euro, after hopes for an improved political outlook in Britain sparked a wave of stop-loss trading. The gains were kept even after Britain said it would stand by the US if it came to war on Iraq, while also setting out six conditions for Iraqi President Saddam Hussein to meet if he wanted to avoid armed conflicts.

Sterling surged 0.39 per cent to 68.43 pence per euro, leaving behind its recent four-year lows on the single currency set earlier this week. Against the dollar, it was up 0.17 per cent since late New York trade at $1.6069. Worries over political stability hurt the pound this week after a cabinet minister threatened to resign if Blair decided to go to war with Iraq even if his efforts to get a new UN resolution together with Washington failed.