December 15, 2003	Monday	Shawwal 20, 1424

The rupee/dollar parity remained under pressure in the interbank market for the second consecutive week. The year-end payment requirements by banks have boosted dollar demand, as a result, dollar supply remained tight during the week.

The declining trend in rupee value persisted throughout the week, which opened on a negative note on December 8, shedding 2 paisa over the previous weekend’s level of Rs57.29 and Rs57.30 on December 6. After the 2 paisa fall in rupee value, the dollar traded at Rs57.30 and Rs57.32 on December 8.

Government payments and increased dollar buying by banks to cover short term positions are the two major factors, which boosted dollar demand in the interbank market bringing the rupee under pressure. The rupee shed another 15 paisa against the dollar in the following four days’ trading. The week closed with the dollar changing hands at Rs57.44 and Rs57.46 on December 12.

In kerb trading, the rupee lost 4 paisa in the first two days of the week due to continued demand pressure on the rupee. On December 9, the dollar was seen changing hands at Rs57.30 and Rs57.40 as compared to its previous week close of Rs57.22 and Rs57.27. However, it managed to recover 2 paisa on December 10, on slight decline in dollar demand, which traded at Rs57.30 and Rs57.38.

The parity remained unchanged on December 11, due to balanced demand and supply but then the rupee shed 8 paisa on December 12, as dollar demand gained momentum. At the close of the week, the dollar was changing hands at Rs57.40 and Rs57.45, reflecting a cumulative gain of 18 paisa versus the rupee against its previous week’s level of Rs57.22 and Rs57.27.

Against the European single currency the rupee suffered a sharp fall in the week, crossing Rs70 barrier in the kerb on high demand for euro. The week commenced with euro changing hands at Rs69.50 and Rs69.80 on December 8, reflecting 30 paisa fall in rupee value over the previous week end’s level of Rs69.20 and Rs69.50. The rupee extended further decline of 50 paisa versus the euro on December 9, due to persistent weakness of dollar in the international market.

The rupee, however, recovered 40 paisa in the following two days, which made euro to trade at Rs69.60 and Rs69.90 on December 11. But rupee strength over the euro was short-lived as it failed to maintain its firmness on December 12, and shed 25 paisa touching its lowest peak at Rs70.15 and Rs70.45, a cumulative decline of 95 paisa over the previous weekend close of Rs69.20 and Rs69.50.

Against other currencies, the rupee at the interbank forex counter extended losses against the British pound, Japanese yen, Australian, New Zealand, Hong Kong and Singapore dollars, Swiss franc, Danish and Norwegian kronas, Swedish krona, Chinese yuan, Malaysian ringgit, South Korean won, Thai bhat, Kuwait dinar, Saudi and Qatari riyals and UAE dirhams. Canadian dollar was the only currency against which the rupee showed strength.

In the international financial market, the dollar continued to remain weak against major currencies. On the week’s opening day, the dollar fell to a record low versus the euro for a seventh straight day, and three-year low versus the yen on December 8 on concerns over the United States’ ability to fund its current account gap. It also dropped to a seven-year low against the Swiss franc, a six-year low against the Australian dollar and to a five-year low against sterling. The dollar’s continued weakness is a result of myriad factors, from economics, political policy and fears of terrorism.

The dollar traded at 1.2665 Swiss francs while sterling climbed to $1.7332. The Australian dollar rose to US $0.7399. It dropped to C$1.2972, a loss of 0.56 per cent on the day. Bank of Canada Governor said the recent sharp rise of the Canadian dollar “is a major uncertainty” but the higher value should be a positive for investment and machinery.

The euro climbed to a record $1.2239 before pulling back to $1.2222, still a gain of 0.49 per cent on the day. The dollar fell to a three year low around 107.14 yen. The dollar spiked to 107.61 yen which traders in New York ascribe to buy orders from Tokyo-based operations that smelled official in nature. The dollar traded back to 107.29 yen, still a loss of 0.33 per cent on the day. Earlier, a Japan’s top financial diplomat, kept up the pressure, aggravating fears of intervention by saying he did not expect the dollar’s weakness to continue given the strength of the US economy and Japan would take necessary measures if the moves go too far.

In London, sterling hit five-year highs against the broadly weak dollar and came within a whisker of levels unseen since its 1992 devaluation, after UK manufacturing data reinforced expectations of new rate hikes. Sterling’s rise to $1.7361 brought it near levels not sighted since the aftermath of its Black Wednesday debacle 11 years ago and its ignominious exit from the European Union’s Exchange Rate Mechanism (ERM). The pound had trimmed its gains to stand 0.21 per cent higher on the day at $1.7320. It was down 0.23 per cent against the euro, having weakened as far as 70.55 pence, its worst levels since mid-October versus the single currency.

On December 9, the dollar shrugged off the Federal Reserve’s widely expected decision to leave US interest rates unchanged and traded just above the record low it hit for an eighth straight day versus the euro. The Fed held rates unchanged at a 45-year low of 1 per cent as policy-makers reiterated their intent to keep benchmark borrowing costs low for a considerable period. After the Fed’s announcement on rates, the dollar fell to a three-year low against the yen before spiking back up.

The US unit hit a new three-year low against the yen of 106.78 yen, however, after the Fed’s announcement. The dollar later traded at 106.95 yen, down 0.29 per cent on the day. Japan has thrown almost 18 trillion yen at the foreign exchange markets this year in a bid to prevent a strengthening currency from choking off the country’s export-led recovery. The greenback also hit a new seven-year low against the Swiss franc and notched its weakest levels against sterling since the aftermath of the 1992 “Black Wednesday” debacle that led to the British currency’s withdrawal from the European Exchange Rate Mechanism.

The dollar was down 0.39 per cent against the Swiss franc on the day trading around 1.2615 francs but above the fresh seven-year low of 1.2590 francs earlier in the global session. The euro climbed steadily to a record high $1.2276 before edging back to 41.2260, up 0.3 per cent previous day’s New York close. The sterling was up 0.78 per cent trading at $1.7466, after hitting an 11-year high of $1.7472. It is at its highest level since its withdrawal from the ERM in 1992. The greenback rose 0.67 per cent to $1.3059 against the Canadian dollar.

On December 10, the dollar pushed higher from three-year lows against the yen and a record low against the euro reversing its losing streak on yen-selling intervention by the bank of Japan. The dollar surged by more than 1 per cent to a session high around 108.73 yen as dealers estimated the BoJ may have bought up to $5 billion, or roughly 540 billion yen in covert action, even though there was no official confirmation from Tokyo. However, the dollar softened back to trade near 108.44 yen, a 1.20 per cent increase on the day.

The dollar hit a three-year low below 107 yen on December 9. The euro gave up some gains after climbing more than 1 per cent to a high of 132.69 yen. The dollar rose 0.43 per cent against the Swiss franc to 1.2669 francs, and was steady at $1.3079 against the Canadian dollar. The Australian dollar was down 0.38 per cent at around US $0.7385 against the US dollar.