January 9, 2006	Monday	Zilhaj 8, 1426

THE local currency market wore a dull look at the start of 2006. In the inter-bank market trading remained suspended on the opening day of the week as inter-bank rates were not issued on account of the Bank Holiday on January 2. The dollar closed last week at Rs59.73 and Rs59.75, with the rupee maintaining a firm trend whole week.

However, a significant rise was seen in dollars’ buying as most of the international markets resume their business on January 3, after observing Christmas and New Year holidays. Some local banks including two leading banks were engaged in buying dollars to meet the importers demand. Following the rise in demand for dollar by the local banks, the rupee shed eight paisa against the dollar changing hands at Rs59.81 and Rs59.83.

Bearish sentiments were observed on January 4. The rupee continued its downtrend versus the dollar, and shed four paisa more to trade at Rs59.85 and Rs59.87. Most of the local banks were in the market to buy dollar. Since the resumption of trading activities with the start of New Year, the rupee has lost nearly 12 paisa versus the dollar in the inter-bank market

Rising demand by the banks to meet the payments continued to exert downward pressure on the rupee. As a result, falling trend persisted in the inter bank rupee/dollar parity on January 5. The rupee further shed three paisa for buying and two paisa for selling to trade at Rs59.88 and Rs59.89 versus the dollar.

Mixed trend was again seen in the currency market, amid higher demand, on January 6. In the inter-bank market, the rupee gained three paisa versus the dollar for buying and two paisa for selling, changing hands at Rs59.85 and Rs59.87. Over the previous week close, the rupee this week lost 12 paisa versus the dollar.

The open market commenced the week on positive note as the rupee managed to recover versus the dollar, amid lack lustre business due to closure of the international markets on account of Christmas and New Year holidays. The rupee gained 15 paisa for buying and 10 paisa for selling trading at Rs59.75 and Rs59.85 on December 2.

Last week the rupee mostly moved in a tight range. It did not show any big change and closed at Rs59.90 and Rs59.95. However, on January 3, the rupee failed to hold its firmness versus the dollar in the open market and lost five paisa, changing hands at Rs59.80 and Rs59.90 against the dollar. The rupee remained stable versus the dollar on January 4, and traded at its overnight levels of Rs59.85 and Rs59.90.

However, on January 5, it managed to gain 15 paisa against the dollar for buying and another 10 paisa for selling to trade at Rs59.70 and Rs59.80. The rupee fell versus the dollar in the open market on January 6, shedding ten paisa to trade at Rs59.80 and Rs59.90. Increasing demand from the banks to meet the import payments pushed the rupee down in the open market. During the week, the rupee in the open market managed to recover ten paisa for buying and five paisa for selling against the dollar.

Versus the European single common currency, the rupee gained 20 paisa on the opening day of the week in review, when the euro was seen changing hands at Rs70.20 and Rs70.30 compared with previous week close of Rs70.40 and Rs70.50.

The rupee lost ten paisa versus the euro trading at Rs70.50 and Rs70.60 on January 3. But after maintaining a stable trend over the past few weeks, the rupee lost nearly 100 paisa versus the euro on January 4, when it was quoted at Rs71.50 and Rs71.60.

However, the rupee managed to recover 45 paisa against the euro and traded at Rs71.05 and Rs71.15 on January 5, as the US currency managed to show some strength versus other currencies in the international market. On the fifth day of the week, the rupee shed 20 paisa for buying and selling at Rs71.25 and Rs71.35. Thu the rupee lost 85 paisa this week versus the euro.

In the international financial market, trading activities remained suspended in major financial centres on account of Christmas and New Year Holidays. The euro last week was trading at $1.1839, while the dollar was at 117.88 yen. At the start of the year the single European currency was trading close to an all-time high of 1.36 dollars, while the dollar languishing around 104 yen.

The dollar climbed about 13-14 per cent against the euro and the yen in 2005. Its rebound during 2005 followed three years during which the US unit struggled in the face of concerns about gaping shortfalls in the US current account and trade balance. In 2006 analysts see the US Federal Reserve easing the pace of interest rate hikes. Higher US borrowing costs in 2005 handed the euro its first annual loss against the dollar in four years.

On January 3, the dollar fell to near session lows after minutes from the Federal Reserve’s policy meeting in December hinted that the tightening phase of monetary policy could be coming to an end. Much of the dollar’s gains in 2005 were bolstered by a series of 13 rate hikes with expectations of more to come.

Trading volumes were low however as market participants started to return from vacation but holidays in Japan, China and New Zealand kept some operators away and exaggerated price swings. The euro rose above key $1.20 resistance to session highs around $1.2030. It last traded at $1.2013.

Against the yen, the dollar fell to around 116.03 before last trading at 116.12 yen. The dollar also fell half a percent against the Swiss franc to 1.3065. Sterling gained against a broadly weaker dollar with a muted reaction to data showing Britain’s factory sector improved marginally in December. It gained half a per cent against the dollar at $1.7314.

The dollar slid to two-month lows against the euro and the Swiss franc on January 4, undermined by expectations the US Federal Reserve is nearing the end of its rate tightening cycle. The release of minutes of the December 13 Federal Open Market Committee meeting on January 3, signalled that the central bank’s 1-1/2 year rate rise campaign was likely near completion.

In New York, the euro was up one per cent against the dollar at $1.2125 after climbing as high as $1.2144, its highest level since late October. The euro has rallied 2.4 per cent against the dollar in the past two days. Against the yen, the dollar fell 0.1 per cent to 116.02 yen, within striking distance of a two-month low below 115.50 yen. Sterling rose 0.8 per cent to $1.7583.

On January 5, the dollar recovered from a two-day slide, as investors took profits in other currencies, such as the euro, and squared up positions ahead of weekend’s US jobs report for December. The euro was last down 0.2 per cent against the dollar at $1.2101 and off a two-month high near $1.2145 set on January 4. It had earlier gained slightly against the greenback and hit five-month highs against sterling after data showed the euro zone and British service sectors grew at their fastest pace in 23 and 20 months,

Much of the dollar’s recent decline was sparked by the release of minutes from the Federal Reserve’s December policy meeting which some investors took to mean the Fed will soon end the current monetary-policy tightening cycle. The dollar was little changed against the Swiss franc to 1.2761 francs while sterling was down 0.2 percent at $1.7544. Against the yen, the dollar was little changed last trading at 115.89 yen.

The greenback scored its best gains against the Canadian unit since July, rising 1.3 percent to $1.1623, a day after the loonie scored its highest daily close against the dollar in 14 years. Canadian election concerns and a drop in natural gas prices weighed on the currency

At the close of the week on January 6, the dollar inched higher, but gains were limited ahead of US employment data that traders say could shed light on whether the Federal Reserve will soon end an 18-month cycle of dollar-boosting interest rate rises. The dollar was trading at 116.05 yen, up from around 115.90 yen in late New York trade. Some traders said strong jobs data could lift the dollar into the mid- to upper-116 yen region, while support was seen around 115.50 yen.

The euro was down slightly at $1.2090 after dollar/yen gains helped to drag the single currency further from a two-month high of $1.2145 touched earlier in the week. Sterling rose one percent against the dollar to its highest in more than two weeks after the release of weaker than expected US employment data. It rose as far as $1.7718, its best showing since December 19, but eased slightly to $1.7699.

Last year, the dollar gained around 15 per cent versus the euro and the yen as interest rate increases by the Fed at each of its policy meetings since June 2004 lured investors to dollar deposits and assets. The dollar has also lost support it gained toward the end of last year from a one-off tax break to US companies repatriating overseas profits, which expired at the end of December.