May 26, 2003	Monday	Rabi-ul-Awwal 23,1424

THE rupee on May 19, maintained its firmness in the inter bank market, showing no change in weekend levels of Rs57.78 and Rs57.79 versus the dollar. In the absence of any major dollar demand from any quarter the rupee sustained its stability.

Matching demand with supply was also one factor behind the stability of the local currency. On May 20, the domestic currency value boosted on increased dollar selling by the foreign banks and less buying interest. As a result, the rupee managed to gain three paisa in relation to dollar trading at Rs57.75 and Rs57.76.

High inflow of remittances and less demand for dollars made the rupee stronger versus the greenback on May 21,helping it to extend further gain of four paisa. At close of the day the dollar in the inter-bank market was trading at Rs57.71 and Rs57.72. On May 22, rising trend persisted as the rupee maintained its winning streak for the third day in a row, gaining four paisa over its overnight levels to trade at Rs57.66 and Rs57.68. There was increased dollar selling by exporters and higher inflow of remittances. The rupee continued its winning streak against the dollar on May 23, and gained another four paisa for buying and five paisa for selling over its overnight levels closing the week at Rs57.62 and Rs57.63, up 16 paisa from its previous weekend levels.

In kerb dealings also, the rupee maintained its overnight levels versus the dollar at Rs57.80 and Rs57.85 on May 19, but on May 20, it shed three paisa against the dollar at Rs57.83 and Rs57.88. The rupee did not show major change in relation to the dollar on the following day and traded at Rs57.82 and Rs57.87 on May21. The trend persisted on May 22 and the rupee remained almost stable at Rs57.82 and Rs57.86. It reverted to its previous weekend’s level of Rs57.80 and Rs57.85 on May 23, following two paisa gain over its overnight level of Rs57.82 and Rs57.86 against the dollar, amid lack of buying interest and continued supply of dollar.

Versus the euro the rupee slipped 75 paisa on the week’s opening day and traded at Rs67.50 and Rs67.80. However, on the following day it recovered 55 paisa to trade at Rs66.95 and Rs67.25 against the single European currency on May 20. On May 21, the euro was seen touching new barrier against the rupee which lost 45 paisa versus the euro and traded at Rs67.40 and Rs67.70 due to increase in euro value in the world markets. It, however, gained 20 paisa in relation to the euro for buying and selling at Rs67.20 and Rs67.50, on May 22. On May 23, the euro crossed Rs68 barrier as the rupee suffered 70-paisa loss against the single European currency and traded at Rs67.90 and Rs68.20.

Rising demand for euro in the world markets and its continued strength over the dollar had pushed the rupee down by 115 paisas during the week.

Against other major currencies at the inter bank forex counter, the rupee at the close of the week, continued to extend further losses over the British pound, Swiss franc, Australian and New Zealand dollars, Danish and Norwegian krones and Swedish krona. It, however, posted gains over the Canadian, Hong Kong and Singapore dollars, Japanese yen, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and UAE dirham.

In the international financial market, the dollar fell on May 19, hurt by traders’ firming conviction, the strong dollar policy has all but been abandoned, but its decline was reversed by suspicions that the Bank of Japan was selling yen. The dollar recovered from fresh four-year lows against the euro and a two-year against the yen, in part helped by St. Louis Federal Reserve President remarks that the US economy has the potential to grow much more quickly and that the risk of deflation in the United States is minor.

Currency traders took this to mean that the European Central Bank is more likely to cut interest rates, removing part of the advantage of higher-yielding euro-denominated bonds, a consideration that, some said, checked the euro’s ascent. The single European currency’s attempt to return to its starting blocks has sent ripples through financial markets and set some analysts betting the euro could reach $1.20 over the near term. The euro rallied within a fraction of its $1.1747 January 1999 launch level, reaching $1.1738. The euro has gained about 12 per cent this year.

The dollar fell as low as 115.10 yen, its lowest since February 2001, before traders rapidly bought it back, initially to levels above 116.50 yen, up 0.40 per cent on the day. The euro surged to a record high against the Japanese unit above 136.20 yen up 1.30 per cent on the day. Against the Swiss franc the dollar hunkered at its weakest level since October 1998 at 1.2964 down about 1 per cent from its previous US close. Sterling leapt on per cent to its highest level against the dollar in over three months. The pound rose to peaks above $1.6380, its strongest level since early February. Against the euro, it was little changed at 71.45 pence but still within sight of all-time lows set last week beyond 72 pence.

On May 20, the dollar fell against major rivals despite modest support from speculation that Japan was selling its currency, which has been undermined by indications that America no longer prefers a strong dollar. The US currency fell within view of the euro’s January 1999 launch price and hit a two-year low against the yen, roiled by recent comments from Treasury Secretary John Snow, who suggested the Bush administration is unconcerned by the dollar’s sharp decline. Pushing the euro back above the $1.1700 mark. It rose within sight of its January 1999 $1.1747 launch level against the dollar to session high of $1.1716.

The dollar was at 117.09 yen little changed from previous day late US level. When it rebounded about two yen from a two-year low near 115 yen, helped by what traders thought was Japan’s most aggressive intervention this year. Sterling endured a lacklustre session holding below the previous session’s three-month high against the dollar as the greenback stabilized having suffered a sharp fall in the previous session. It stood at $1.6350, having been stuck in a tight $1.6350-$1.6310 range for most of the session. Against the euro it was at 71.31 pence, off its record low of 72.13 set last week. On May 21, the dollar mustered modest against major rivals aided by the yen’s fall, which was driven by traders’ suspicions of Japan selling its currency. The dollar bought 117.21 yen up 0.52 per cent from its previous US close and up more than two full units from two-year low of 115.03 yen on May 19.

The euro hit its highest levels against the yen since it started trading in January 1999, reaching session peaks around 137.50 yen. Profit-taking drove the single European currency lower against the dollar from the session high of $1.1744, a level fractionally below its launch rate. In late trading, the euro hovered not far below $1.17. Sterling shot up to a three-month high versus the dollar taking its cue from the volatile euro/dollar rate. In the late European trade the pound also traded a third of a percent up on the day against the euro, driven by technical factors and some profit-taking on previous weakness, in addition to the slight depreciation of the euro versus the dollar. Sterling traded at $1.6427, slightly down from three-month highs at $1.6468, but still up on the day. Against the euro, it was at 71.14 pence. Earlier in the day, sterling dipped briefly following the release of bank of England minutes, which shoed the Monetary Policy Committee split at its may 8 meeting to keep rate stable.