The continued buying of dollars to cover payments amid rising oil prices, mounting import bill, widening trade gap and downward pressure on foreign exchange reserves, is a sign of further weakening of rupee in the local currency market. Pressure is mounting over the rupee from costly oil imports.

Persistent demand for dollars on the opening day of the week forced the rupee to touch the three-year low for the second time during the current month at Rs61.30 and Rs61.60 in the inter-bank market. Market requirement was nearly $40-50 million, including $35 million payment for oil on October 25, according to market sources.

The rupee, however, managed to recover some lost ground on October 26, gaining 20 paisa for buying and 40 paisa for selling to trade at Rs61.10 and Rs61.20 versus the dollar. Demand and supply for dollar was in balance as exporters came in the market to sell dollar in moderate trading. Banks' dollar selling also helped improved greenback supply position.

On October 27, the rupee extended further gains over the dollar. It recovered five paisa more in the inter-bank market, where the dollar was changing hands at Rs61.05 and Rs61.10. The rupee once again came under demand pressure on October 28, after it failed to hold its overnight firmness.

The fresh demand for dollars in the inter-bank market forced the rupee to shed 10 paisa on October 28, which traded at Rs61.15 and Rs61.25 against the dollar. It, however, managed to recover 15 paisa for buying and 25 paisa for selling against its opening week's level.

On October 29, the rupee/dollar parity further weakened, losing 17 paisa over its overnight level to trade at Rs61.32 and Rs61.35. Corporate demand for payment requirements and forward dollars' buying by importers were the leading factors in exerting downward pressure on the parity.

The decline in the local currency value was, however, restricted by the central bank intervention. During the week the rupee lost 80 paisa in the inter-bank market against the dollar.

In the open market, the rupee lost heavily versus the greenback on October 25 to trade at Rs61.30 and Rs61.50, shedding up to 70 paisa, amid panic buying. It, however, managed to hold on to its overnight levels versus dollar at Rs61.30 for buying but showed an appreciation of ten paisa for selling at Rs61.40 on October 26.

On October 27, the rupee continued to move down versus the dollar and traded at Rs61.45 and Rs61.55, after shedding 15 paisa from its overnight levels. It further lost 15 paisa changing hands at Rs61.60 and Rs61.70 on October 28.

The rupee shed another five paisa on October 29, trading versus the dollar at Rs61.65 and Rs61.75. Compared with previous weekend the rupee in the open market lost up to 95 paisa this week.

Versus the euro, the rupee this week registered sharp declines to touch Rs78 mark. The week opened on a negative note, shedding 120 paisa in a single day trading to trade at Rs77.05 and Rs77.35 on October 25. On October 26, the rupee further lost 55 paisa in relation to euro which traded at Rs77.60 and Rs77.90.

In the following two days, however, the rupee managed to recover 40 paisa versus the European single common currency, trading in tight range of Rs77.25 and Rs77.55 on October 28.

On October 29, the euro breached the Rs78 market versus the rupee after the local currency failed to maintain its firmness in the previous two days and shed 70 paisa to trade at Rs77.95 and Rs78.25. This was the second time within a week when the single European currency has pushed the rupee down on the back of dollar's fall in the overseas markets.

In the overseas markets, the dollar sank within a cent of record lows against the euro on nagging worries over the US economy on October 25. It fleetingly pared its losses against the yen after a warning shot from a Japanese policy-maker that Japan would take action if the dollar falls too quickly against the yen, but it soon erased those gains

Record high oil prices, mixed US economic data, low interest rates and a large and widening US current account deficit have weighed broadly on the dollar, pushing it below several key technical levels and sparking even more selling. Rising risk aversion in the run-up to the tightly contested US presidential election on November 2 was also hurting the dollar.

The euro rose as high as $1.2829, just a cent shy of a record high of $1.2927 reached in February. In New York, it was trading at $1.2805 up 0.95 per cent. Against the yen, the dollar fell nearly one per cent to 106.24 yen before trimming its losses to 106.68, down about 0.5 per cent.

Sterling tripped up off two-month highs against the dollar to a two-month peak against the dollar at $1.8449, but it later retreated over half a cent to trade around $1.8400.

The dollar gained on October 26, after a less-dismal-than-expected read on the US consumer confidence and a downbeat outlook for European growth spurred traders to buy back dollars after aggressive recent selling.

The euro was trading at $1.2759, down 0.3 per cent on the day and off session peaks of $1.2841, which had been a new eight-month high. Against the yen, the dollar was trading nearly unchanged at 106.67 yen. The pound also lost ground against the dollar. It was slightly weaker at $1.8400, compared with a two-month high of $1.8449.

On October 27, the dollar rallied sharply erasing early losses, after oil prices plunged $3 per barrel on news of a bigger-than-expected build in US crude oil supplies. The euro fell a full cent against the dollar, below $1.2700, as the US oil prices dropped below $53 per barrel. Sterling was trading at $1.8279 down 0.3 per cent. Against the yen, the dollar was trading at 106.41 yen down 0.4 per cent.

On October 28, the dollar weakened broadly, reversing a short-lived rally on news that China had raised interest rates as the market decided Beijing's move did not radically change dollar-bearish market fundamentals. But the dollar eased as most economists decided commodity exporters were unlikely to be devastated by declining demand.

In New York, the euro was up 0.25 per cent at $1.2737. The dollar was off slightly at 106.29 yen.

At the close of the week on October 29, the dollar hovered near a six-month low against the yen on worries about the strength of the US economy and the effect on currencies of a rate rise in China.