April 3, 2006	Monday	Rabi-ul-Awwal 4, 1427

THE week in review observed dull trading throughout the week in the local currency market, where the rupee/dollar parity was seen trading in a narrow range. In the inter-bank market, handsome recovery was seen in the rupee’s value on the opening day of the week, amid easy supply of the US currency. The rupee gained eight paisa versus the dollar, which was seen changing hands at Rs59.96 and Rs59.98 on March 27, against its previous week close of Rs60.02 and Rs60.04.

On March 28, the rupee failed to retain its overnight firmness slipping two paisa to trade at Rs59.98 and at Rs60.00. The corporate demand pushed the rupee slightly lower. On March 29, two paisa recovery was seen in the rupee’s value against the dollar which was quoted at Rs59.96 and Rs59.98. Heavy import bills increased the dollar-buying by the corporate sector as a third quarter of the current fiscal year is near to close. As a result of rising interest of the foreign investors, inflows’ position improved and strengthened the rupee’s value versus the US currency.

On March 30, balanced demand and supply position enabled the rupee to retain its gains versus the dollar but it seems the local currency may not sustain its firmness in the coming days due to increasing demand for dollars. The rupee held its overnight levels versus the dollar at Rs59.96 and Rs59.98. As a result of steady inflows of dollar, the rupee managed to maintain its firmness on March 31, for the third day and held its overnight value versus the dollar at Rs59.96 and Rs59.98. During the week it recovered six paisa versus the dollar in the inter-bank market.

In the open market, the rupee picked up three paisa against the dollar on March 27, when it traded at Rs60.20 and Rs60.25, as compared to its previous weekend’s level of Rs60.23 and Rs60.28. On March 28, it, however, failed to hold ground versus the dollar and shed five paisa against the dollar changing hands at Rs60.25 and Rs60.30. On March 29, the rupee extended its overnight losses and further shed five paisa to trade at Rs60.30 and Rs60.35.However, on March 30, the rupee managed to gain two paisa against the dollar changing hands at Rs60.28 and Rs60.33.

As the dollar fell sharply against the major currencies in the overseas markets on March 31, the rupee maintained its overnight gains in the open market, picking up another 13 paisa to close at Rs60.15 and Rs60.25 against the dollar. As compared to the previous week close, the rupee in the open market gained three paisa versus the dollar this week, amid fluctuations.

Against the euro, the rupee, however, shed 10 paisa on the first day of the week in review and traded at Rs72.20 and Rs72.30 on March 27, as compared to its last week close of Rs72.15 and Rs72.25. However, on the second day of the week, the rupee reverted to its opening day level after gaining ten paisa versus the European single common currency.

On the fourth day, the rupee failed to maintain its firmness over the euro and lost 40 paisa to trade at Rs72.35 and Rs72.45.

On March 28, the dollar bounced higher after the Federal Reserve raised the US interest rates again and said more increases may lie ahead, although analysts said this may not be enough to spark a sustained rally. In the US central bank’s first policy-setting meeting since Ben Bernanke took over as chairman, the Federal Open Market Committee raised interest rates for the 15th time in a row, by a quarter of a percentage point to 4.75 per cent. The accompanying statement, which some said marked a slight departure in style from the last written under Alan Greenspan’s chairmanship, said additional rate hikes “may be needed.”

In late US trading, the euro was last at $1.2000, down from $1.2070 just before the Fed published its statement and down 0.1 per cent on the day. Against the yen, the dollar was up at 117.90 yen from 117.20 yen just before the comments, up a full per cent, marking its largest one-day rise against the Japanese currency since December. The euro was at 141.55 yen, up one per cent on the day. Sterling firmed to a one-week high, but stayed in a fairly narrow range. It was up 0.37 per cent at $1.7527, around its highest levels in a week.

On March 29, the dollar crept lower as investors booked profits on the prior day’s sharp gains, when the Federal Reserve raised US interest rates and hinted more could be in the pipeline. Elsewhere, sterling staged its biggest fall against the dollar in a week after soft British economic data suggested the UK rates may not rise further.

The dollar erased the gains made the day before against the euro when the Fed raised rates by a quarter points to 4.75 per cent and hinted that more increases may lie ahead.

But analysts said investors may well have underestimated the Fed’s intentions and therefore once this most recent round of position-squaring was over, the dollar could get a boost in coming sessions. Another Fed rate hike to five per cent in May has been almost fully priced in, so the market will comb through policy-makers’ comments and economic data, looking for clues on whether further increases are likely.

The euro was last at $1.2028, showing a 0.2 per cent increase on the day, having touched an intra-day high of $1.2049 earlier in the session. Against the yen the dollar was down 0.1 per cent on the day at 117.74 yen. Earlier, the yen got a lift from comments from a US Treasury official who said the head of China’s central bank would be in agreement on the issue of foreign exchange, suggesting to traders some progress toward a free floating Chinese currency. China’s central bank chief agrees that Beijing should move more quickly to increase the flexibility of its currency, although political will for faster action was lacking, said Tim Adams, Treasury’s under secretary for international affairs. Sterling was last at $1.7346, down 0.8 per cent on the day, after falling steadily in the wake of softer reports on the UK current account deficit and mortgage lending, among others.

On March 30, the dollar racked up its biggest one-day decline against the euro in two months as concern mounted that some central banks may start moving part of their reserves into other currencies. Recent robust economic data out of the euro zone also helped boost the single currency against the Japanese yen, as expectations build for the European Central Bank to raise interest rates sooner than some had originally thought.

The dollar had rallied on Tuesday when the Fed raised the fed funds rate to 4.75 percent and signalled that more rate increases may be coming. But markets have since returned to the view that the US rates could well peak in May at five per cent and the dollar’s gains have eroded. The catalyst earlier in the day for the euro’s rally was concern that the United States may not be able to attract enough foreign capital flows, particularly from China, to offset its huge trade deficit. Some analysts say China, which holds the world’s largest foreign currency reserves, may start buying fewer US assets as it slows its accumulation of reserves.

In late afternoon trading, the euro was last up 1.2 per cent against the dollar at $1.2168, after scoring its largest one-day rise since late January. The euro was also up 0.7 per cent against yuan at 142.70 yen, nearly a two-month high. Against the yen, the dollar was down nearly 0.4 percent at 117.31 yen. The dollar stood at 1.3042/44 Swiss francs from the 1.3015/20 francs level late on March 29. But the pound remained 0.3 per cent higher against the dollar, partially supported by upbeat UK numbers in early trade.

At the close of the week on March 31, the yen bounced from a seven-week low against the euro after a softer-than-expected rise in Japanese consumer prices did nothing to shake expectations the Bank of Japan could raise interest rates by the third quarter. Currency moves were erratic, with dealers saying the market was disrupted by last-minute orders, both bids and offers, from Japanese companies as the financial year winds down. A barrage of speculation fuelled the euro’s gains, including rehashed talk of more euro buying due to reserve diversification and rumours that the White House had issued a statement in support of a weaker dollar.

The dollar climbed as high as 117.65 yen before erasing the gains. It stood at 117.40 yen up from around 117.30 yen in trade on March 30. The euro rose to 142.97 yen, its highest level since February 6. It was around 142.75 yen in late US trade. The single currency was a tad lower against the dollar at $1.2155 a day after posting its biggest one-day gain in two months, rising about 1.2 per cent.

Sterling fell half a per cent against the dollar as investors weighed the possibility of a rate cut in Britain against the chances of rate rises in the eurozone and United States. It was trading at $1.7365, half a cent above the day’s low. The dollar stood at 1.2983/85 francs, up a tick from the 1.2973/78 francs level a day earlier. The US currency had been around levels of 1.3095 francs more than a franc higher early on March 30.