March 31, 2003	Monday	Muharram 27, 1424

The rupee remained firm in the inter-bank market this week. Continued inflows of remittances and increased dollar selling by exporters, amid low dollar demand, helped the rupee to recover 3 paisa against the dollar during the week, which traded in a narrow range.

The central bank’s buying supported the dollar from falling sharply. After opening the week at Rs57.81 and Rs57.83 on March 24, the rupee gained 7 paisa in the following three days, touching the week’s high at Rs57.74 and Rs57.77. It, however, lost 5 paisa on the last trading day ending the week at Rs57.79 and Rs57.80 on March 29.

In the kerb, speculative buying was noticed as some investors indulged in fresh buying anticipating rise in dollar if war ends shortly. As a result the dollar showed slight recovery in the week. However, the rupee maintained its firmness over the dollar. The rupee opened the week on a positive note gaining 20 paisa against the dollar to trade at Rs57.80 and Rs57.90 on March 24. However, increase in dollar demand on March 25, helped the dollar to recover 10 paisa. The dollar was quoted at Rs57.90 and Rs58.0 during the day, its highest level in the week. After remaining unchanged on March 26, the rupee gained 5 paisa for buying and selling in the last two days, closing the week at Rs57.85 and Rs57.95, up 15 paisa over the previous weekend close of Rs57.85 and Rs57.95.

Euro remained a preferred currency for investors. It continued to gain versus the rupee during the week. The week opened on a positive note, with rupee gaining 40 paisa against the euro on March 24, when euro traded at Rs61.10 and Rs61.40. the rupee, however, lost 50 paisa on March 25, to trade versus the euro at Rs61.60 and Rs61.90. It made a partial recovery on March 26 and gained 30 paisa versus the euro to trade at Rs61.35 and Rs61.65. On March 27, the euro staged on recovery and gained 30 paisa, trading at Rs61.65 and Rs61.95 against the rupee. The rupee slide further by 5 paisa on March 28, touching its lowest level during the week at Rs61.70 and Rs62.0. The euro recorded 20 paisa gain over the rupee in the week.

Against other major currencies at the inter-bank forex counter, the rupee remain weak against the British pound, Canadian, Australian, New Zealand and Singapore dollar, Swiss franc, Japanese yen, Danish and Norwegian krones, Swedish krona and Kuwaiti dinar. The rupee, however, gained versus the Qatari riyal and the UAE dirham and remained unchanged against Hong Kong dollar, Chinese yuan, Malaysian ringgit and Saudi riyal.

On the international front all currency markets are heavily focused on war news. Currency markets mirrored the ebb and flow of the war in Iraq on March 24, as the dollar lost all the value it added from previous weekend’s rally after a weekend in which US-led forces hit more forceful resistance. The dollar dropped over 1 per cent against the euro and the Swiss franc, more than erasing gains notched up on March 21 when news reports of massive aerial bombardments of Baghdad and of US-led forces advancing virtually unopposed through the Iraqi desert heartened investors looking for a quick end to the war.

Many fund managers and longer-term investors preferred sitting on the sidelines, unwilling to engage in a trading environment ruled by one headline to the next, speculators have dominated. As a result, the euro climbed from two-month low of previous weekend close of $1.0498 to trade up 1 per cent on March 24 to $1.0631. The dollar fell from a two-month high of 1.4052 Swiss francs to trade at 1.3847 francs, a loss of 1.18 per cent from New York close. Dealers said a drop of more than 3 per cent for major US stock indexes also was hurting the dollar.

The dollar fell 0.63 per cent at 120.66 yen. The dollar’s losses against the yen were moderated by speculation Japanese authorities may take further steps to boost liquidity after a meeting between Finance Minister Masajuro Shiokawa and Bank of Japan governor Toshihiko Fukui ended with a decision to call a special BoJ meeting.

Sterling advanced on the limp dollar and eased against the euro as British Prime Minister Tony Blair’s public support rose but markets continued to fret over Britain’s involvement in war. Sterling investors are also closely watching Britain’s domestic front where Blair has been under heavy criticism for taking UK forces to war.

Sterling was down a quarter of a per cent against the euro at 67.50 pence since last week’s close, and up more than 0.80 per cent on the dollar at $1.5761. Since last week’s start of the war, which the US says is necessary to disarm Iraq of its alleged weapons of mass destruction, sterling remains unchanged versus the euro but is more than a cent stronger against the dollar.

On March 25, the dollar cut its losses in a market dominated by war news of an apparent uprising against forces loyal to Saddam Hussein in Basra injecting optimism into the financial markets that helped lift stocks and pull the dollar off session lows.

The euro fell from a near session high $1.0722 to end the New York session around $1.0649, up just 0.11 per cent from previous day’s New York close. The dollar lifted itself from the session low 1.3734 Swiss francs to trade at 1.3835, still a loss of 0.09 per cent on the day. The dollar fell to 120.18 yen, off 0.50 per cent.

The dollar’s losses against the yen were exaggerated after an emergency Bank of Japan meeting ended without any major changes in policy that could have weakened the yen. Before the meeting, the yen had faced pressure on speculation the BoJ would adopt more aggressive easing measures to help fight deflation, like buying bonds denominated in foreign currencies.

Sterling put in a mixed performance falling against the euro but hitting its highest level against the dollar since the start of the Iraq war as investors scaled back hopes of a quick end to the conflict. The pound was little changed at $1.5740 having earlier pushed to a one-week high at $1.5795. It was down more than half a per cent at 68.00 pence per euro, with thin trading conditions making for choppy price moves.

On March 26, the dollar weakened slightly with trading light as investors paid scant attention to a flurry of gloomy US economic news and focused instead on headlines about the war in Iraq. The euro rose to $1.0686 up 0.35 per cent from overnight New York close, but below the session high at $1.0702. The dollar was down for the third straight day against the euro after last week’s rally following the start of the war. The dollar slipped to 1.3815 Swiss francs, a loss of 0.11 per cent on the day. The euro rose to 1.4765 francs up 0.22 per cent.

Sterling hugged familiar ranges against the euro and the dollar as investors waited for clues on the likely length of conflict in Iraq before taking positions. It was steady at $1.5740 and 67.80 pence per euro having shuttled in a narrow range throughout the session.

On March 27, investors played it close to the chest leaving the dollar nearly unchanged as the war in Iraq progressed but the realization that a quick conclusion was not at hand had the greenback under pressure. The dollar has been creeping lower since March 24, when it became clear that the war in Iraq was not going to be over as quickly as some had hoped, losing about two cents to the euro.

The euro rose slightly to $1.0694, but was off the day’s highs of $1.0744, a level that put it at its highest point in 10 days. One longer-term negative for the euro came from Germany’s warning that its budget deficit in 2003 would likely be above the 3 per cent of gross domestic product limit set by the European Union’s Stability and Growth Pact. The pact helps underpin the euro’s value. In 2002, Germany’s budget deficit was 3.6 per cent of GDP.