17 August 2004	Tuesday	30 Jamadi-us-Saani 1425

The rupee continued its weakening trend in the local currency market, both in the inter bank and the kerb markets, during the week in review.

In fact, dollar-buying continued for oil and debt payments but under the SBP's close watch, the rupee was able to make up some losses and the rates did not drop sharply. Towards the close of the week, the rupee supported by SBP move recovered some of its early week losses.

In the inter bank market, the rupee firmly held on to its weekend levels on the opening day of the week, changing hands at Rs58.92 and Rs58.40 on August 9, fearing State Bank of Pakistan (SBP) intervention.

Earlier in the session, the rupee was seen changing hands at Rs58.95 and Rs58.97 against the dollar due to persistent demand, but was able to gain three paisas by the close of the day.

On August 10, the rupee commenced the day on a firm note, initially showing no big change in its overnight levels, with the dollar trading at Rs58.91 and Rs58.94. However, before the end of the session the rupee had managed to gain four paisas and traded at Rs58.86 and Rs58.90.

On August 11, the rupee/dollar parity remained weak, amid persistent demand for dollars. Despite exporters' dollars selling, the rupee shed two paisas with the dollar changing hands at Rs58.90 and Rs58.92.

The exporters rushed the market to sell their dollar proceeds following State Bank's intervention. The SBP injected 10 million dollars in an effort to restrict any steep decline in the value of rupee.

On August 12, the rupee recovered 12 paisas in a single day rally and traded at Rs58.77 and Rs58.80 after the SBP move to restrict free fall of the rupee and improved foreign exchange reserves position. Sufficient dollars inflows in this way enabled the rupee to deal with the corporate demand.

The banks bought nearly 25-30 million dollars to meet the debt-payment requirements. The market will be closed on August 14 on account of public holiday being independence day.

When compared with the previous week close, the rupee in the past five days managed to gain 15 paisas against the dollar. In spite of State Bank of Pakistan's strict monitoring over the rupee fluctuation, the local currency in kerb trading lost 10 paisas on the week's opening day and traded at Rs59.10 and Rs59.20 against the dollar.

As the market was short of dollars due to the holding of dollar proceeds by the exporters and increased buying demand from importers to meet import payments, the rates remained range-bound.

On August 10, the parity moved both ways as the rupee shed two paisas versus dollar for buying, but picked up three paisas for selling to trade at Rs59.12 and Rs59.17, amid hectic demand for dollars.

On August 11, the rupee firmly held on to its overnight levels to trade at Rs59.12 and Rs59.17, despite upward demand pressure. On August 12, The rupee did not react to the inter bank market trend, holding its overnight levels for buying and selling at Rs59.12 and Rs59.17.

As a result the rupee in the open market showed a depreciation of 12 paisas on buying and 7 paisas on selling in the past four days when compared to previous week.

Versus the euro, the rupee shed five paisas on the opening day of the week and traded at Rs72.10 and Rs72.40 on August 9. On August 10, the rupee shed nearly 20 paisas extending losses versus the European single common currency trading at Rs72.30 and Rs72.60.

The rupee, however, managed to gain 25 paisas against the euro and traded at Rs72.05 and Rs72.35 on August 11. It, however, lost 10 paisas versus the euro and traded on August 12, at Rs72.15 and Rs72.45, as the single European currency is expanding its ground versus the dollar in the world markets.

In the international financial market, The dollar rallied against major currencies in volatile trade on August 9, drawing support from suspected Bank of Japan intervention to weaken the yen against the greenback, analysts said.

The dollar fell briefly against the yen as traders again cited the BoJ withdrawing its offer to buy dollars, dragging the US currency down to 110.25 yen from 111.17 in just one minute in early afternoon trade.

In New York trade, the euro traded down close to 0.8 per cent at $1.2302 after rising to about $1.2461 in Europe. Last week, the euro hit three-month lows around $1.2056.

In February, it hit record highs above $1.2900. The dollar had a late surge against the euro, with some traders citing buying by Japanese banks around 111.15 yen as one of the catalysts. The euro also slipped close to 0.6 per cent against the yen to 136.99.

On August 10, The dollar rallied after the Federal Reserve raised interest rates by a quarter percentage point and reaffirmed its bullish view that a recent soft patch in the US economic data was transitory.

The prospect of continued incremental Fed rate hikes helped boost dollar sentiment. in New York, the euro was steeply down at $1.2233, according to Reuters data, falling from around $1.2305 shortly before the Fed announcement and down about 0.3 per cent on the day.

Against the yen, the dollar climbed to 111.34 yen, sharply up from around 110.75 yen prior to the announcement and up about 0.6 percent on the day. Against the Swiss franc, the dollar traded up 0.7 percent at 1.2623 francs. Sterling slid to $1.8265, down from around $1.8365 just before the Fed decision and down 0.7 per cent on the day.

Sterling fell one per cent against the dollar to six-week lows and half a percent against the euro to four-week lows undermined by weak UK trade data in the previous session.

The pound has lost more than four cents against the dollar since data showed a record trade deficit in January and exports to the United States had plunged 30 per cent, hit by the pound's recent strength against the dollar.

The pound has slid more than 10 cents against the dollar from 11-year highs set last month as investors have started to bet that the dollar's two-year downtrend may be over. The pound dropped rapidly after the US trade data, losing more than a cent in the space of a few minutes to a low of $1.8063, its worst showing since January 30.

Sterling also hit its lowest since February 13 against the euro at 67.89 pence. On August 11, The dollar firmed modestly against the euro as the market digested the previous day's US interest rate hike and waited to see if upcoming economic data bear out the Fed's optimism.

The Federal Reserve a day earlier raised its benchmark rate by a quarter percentage point - its second such rate hike in six weeks - to 1.50 per cent, broadly boosting the US currency.

The Fed also reaffirmed its bullish view of the economy, bolstering speculation of more dollar-boosting rate hikes in the future. But the currency market hit a relatively calm spell.

High oil prices have weighed heavily on the dollar but have been a bigger burden on the yen as a result of Japan's dependency on energy imports. The Japanese currency has taken a beating from the euro due to rising oil prices, having dropped about 3 per cent since the beginning of the month. Against the Japanese currency, the dollar slipped to 110.85 yen from about 111.34 yen late on August 10.

In late New York trade, the euro was at $1.2218, down from about $1.2233 a day earlier. The greenback also dipped slightly to 1.2614 Swiss francs. Sterling traded firmer at $1.8304.

Sterling held close to the previous day's one-month low against the euro and briefly fell within recent ranges against the dollar as investors interpreted the Bank of England's key inflation report as dovish.

Rising interest rates have supported the pound this year, but analysts said there was little room left to help pound with future rate hikes well priced in by the markets. The pound traded at $1.8277, compared with previous day's $1.8247. It was also at 66.77 pence per euro, versus 66.94 pence. On August 10, it set a one-month low of 67.01 pence

On August 12, The yen edged higher, ahead of an expected inflow of funds as Japanese investors repatriate coupon payments on US Treasuries. Dealers said that trade was razor thin, with many Japanese participants absent due to summer holidays, and investors reluctant to buy the dollar ahead of upcoming data such as US weekly initial jobless claims and July retail sales.

The dollar was at 110.65 yen, down around a third of a yen on the day. The euro was also softer at 135.37 yen, compared with 135.55 in late New York trade. It fetched $1.2236 versus $1.2219.

The pound lost ground against the euro to touch a one-month low and eased nearly half a percent against the dollar as the market weighed up the dwindling prospects for much higher UK interest rates.

The pound has been well supported by expectations of higher interest rates since the Bank began raising rates last November but its quarterly inflation report suggested rates might peak at around 5.0-5.25 per cent.