THE local currency market observed thin trading this week, as both the inter-bank and open markets were closed for three days from January 10 to January 12 on account of Eid-ul-Azha. Earlier, when the market opened the week on January 9, the rupee moved marginally in relation to the US dollar, changing hands at Rs59.85 and Rs59.87, down one paisa against the last week’s closing of Rs59.84 and Rs59.86.

When the market opened on January 13, after three days closure it still wore a holiday mood. As a result, thin trading was observed. The rupee inched up with one paisa gain versus the US currency reverting to its last weekend’s level at Rs59.84 and Rs59.86. At this level the rupee was up by one paisa versus the dollar compared to the week’s opening day levels.

In the open market, a sharp recovery was seen on the week’s opening day on January 9 as the rupee posted fresh gains versus the dollar on increased supply of the greenback. It managed to gain 50 paisa for buying and another 55 paisa for selling to trade at Rs59.35 and Rs59.45. An upward trend in the remittances ahead of the Eid-ul-Azha holidays helped the rupee to strengthen. At the close of the previous week, the rupee was trading at Rs59.85 and Rs59.95 in the open market.

The market remained closed for three days on account of Eid-ul-Azha. When trading resumed on January 13, the rupee failed to maintain its firmness versus the dollar in the open market, and lost 30 paisa to trade at Rs59.65 and Rs59.70. Corporate demand for dollar was high to meet the payment requirements. But at this level, the rupee still managed to recover 20 paisa versus the dollar as compared to its last week close.

The European single common currency strengthened versus the rupee on January 9, crossing Rs72.05 level in the early session, but at close the rupee managed to recover 40 paisa changing hands at Rs71.30 and Rs71.40. versus the euro, against Rs71.70 and Rs71.80 in the last week.

The rupee, however, gained five paisa against the euro on January 13, trading at Rs71.65 and Rs71.75 as the dollar moved both ways versus the major currencies in the world market. During the week, the rupee gained five paisa versus the European single common currency.

In the world markets, the dollar rebounded against the euro on January 9, with a bout of profit-taking allowing the US currency to recover after last week’s sharp sell-off. In the New York trading, the euro was down 0.5 per cent against the dollar at $1.2087 after the euro zone currency’s largest weekly rise in two and a half years last week. The dollar edged down to 114.25 yen, down 0.1 per cent after dipping to three-month lows around 113.78 yen overnight.

In the Tokyo market, trading conditions were thinned by a public holiday in Japan which sharpened the volatility. The dollar was quoted at 114.11 yen, up 0.24 per cent on the day, having fallen to a three-month low of 113.78 in the Asian session. The euro was down 0.82 per cent on the day at 137.87 yen and down 0.58 per cent against the dollar at $1.2084.

In London, sterling rose to a two-week high against the euro and briefly hit a three-week high against the dollar on hopes of better-than-expected UK retail sales data. It was 0.2 per cent weaker against the dollar reversing gains after reaching a 3-week high at $1.7724 in Asian trade.

Last week, the dollar started the year off on a sour note, posting its largest weekly decline against a basket of major currencies in five years. The sharp fall surprised many analysts who had expected the dollar to stay firm until at least the second half of 2006. The dollar’s weakness caused the UBS, one of the largest participants in the currency market, to reverse its bullish short-term forecasts for the greenback.

The analysts now expects the euro to reach $1.23 in a month compared with prior expectations of $1.18, and the dollar to fall to 113 yen in a month compared with previous forecasts of 122 yen.

The euro, however, rose slightly against the dollar and the yen on January 10 after a survey showed the German investor sentiment at its strongest level in two years. The euro was up 0.13 per cent at $1.2101, reversing earlier losses on the back of the strong ZEW reading. The single currency had benefited on the market.

The euro also rose slightly against the yen and the Swiss franc. The dollar was little changed from the late US trading levels at 114.17 yen. It has been on the back foot in 2006, stumbling after it posted its first annual gain in four years in 2005 against a basket of major currencies, after recent minutes of the Fed’s December meeting that suggested the central bank may not have many rate increases left up its sleeve.

The dollar earlier gained some support from the head of the research bureau of the People’s Bank of China, who said that the central bank was unlikely to dump dollar-denominated assets in its foreign reserve holdings in favour of other higher-yielding assets. The market had wrongly assumed that the last week’s statement by the State Administration of Foreign Exchange that it would explore other ways to use reserve assets meant that Beijing could diversify its holdings away from the dollar. The statement has added to dollar selling pressure.

The dollar rose against the euro on January 12 after the news that the US trade deficit for November was narrower than expected, lessening the need for capital inflows to offset it, traders said. Hints from the European Central Bank President on the outlook for euro zone interest rates were not hawkish enough to bolster the euro, they added.

The euro fell to around $1.2050 according to the Reuters data from around $1.2110 before the remarks of the ECB’s President, down by about 0.6 per cent from late on January 11. It also fell to three-month lows against the yen below 137.50 yen. Traders cited the triggering of automatic sell orders for the euros. The dollar traded at 114.00 yen, up from around 113.65 shortly before the trade data.

Speculation about rising euro zone rates comes amid growing expectations that the Federal Reserve could soon put the brakes on its own 18-month-long cycle of rate rises, which have taken official short-term US rates to the current 4.25 per cent. Such expectations have helped push the dollar down around 2.5 per cent against the euro and 3.5 per cent versus the yen so far in 2006. Dollar sentiment has been bruised since the start of the year after minutes from the Fed’s latest policy meeting suggested the US central bank was near the end of its monetary tightening campaign, with the focus returning to structural imbalances in the world’s largest economy.

The dollar slipped on January 13, after the US retail sales in December came in weaker than expected and the core US producer prices index showed tame inflation. The euro rose against the dollar, trading at $1.2071 soon after the US data from about $1.2050 shortly prior. The dollar fell against the yen, trading at 114.38 yen from about 114.60 shortly prior.   The dollar remained steady against the euro after climbing higher a day earlier in the wake of better than the expected US trade news and surprisingly dovish commentary from the European Central Bank’s president. Over the last few weeks, the euro has rallied on a growing market view that the yield-supporting factors that helped the dollar rally last year may have run their course, with the ECB prepares the ground for another hike and the Fed appearing to be toward the end of its rate-tightening cycle.

At close of the session, the US dollar traded at yen 114.50, down from 114.55 and Swiss francs 1.2830, down from 1.2837. The Euro traded at $1.2063 up from $1.2059, while sterling traded at $1.7673 up from $1.7663.

At the close of the week on January 13, the dollar rose against the yen and kept most gains versus the euro after the European Central Bank left interest rates on hold and disappointed euro bulls looking for a clear sign it would soon raise rates. It also gained support from data that showed the US trade deficit narrowed slightly in November.

Dealers said the two events on January 12 had helped stop a wave of dollar selling that had dragged the currency down in January after its first gain in four years against major currencies in 2005, driven by steady rises in the US interest rates.

The euro was up slightly on the day at $1.2050. It had fallen as low as around $1.2005 on January 12, tumbling more than one cent after comments by the ECB President that fell short of expectations by some traders that the central bank would signal a rate rise as early as next month. The euro hit a three-month low around 137.10 yen after comments, but had recovered to around 138 yen.

The dollar was at 114.60 yen. That was up slightly from around 114.40 yen in late US trade a day earlier, when it fell as low as 113.41 yen on electronic dealing platform EBS ahead of the US trade data and the appearance of the ECB President. The dollar’s fall gained momentum after it had crashed through key technical support below around 113.70 yen, triggering a wave of automatic sell orders. Traders said that the Japanese exporters’ sell orders were lined up above 115 yen.

Sterling rose to a three-week high against the dollar and euro after the greenback came under broad selling pressure following weaker-than-expected US economic data. It was bolstered against the euro after the European Central Bank kept interest rates on hold and disappointed some investors hoping for a clear sign it would soon raise rates. Sterling was up half a per cent to $1.7691 easing slightly from a three-week high of $1.7730. The pound traded at 68.14 pence per euro after reaching a three-week high of 68.10 pence earlier in the day.