May 15, 2006	Monday	Rabi-us-Sani 16, 1427

THE rupee this week remained range bound versus the American currency in the local currency market. However, the euro was highly volatile.

It was looking as if the single European currency would cross the mark of Rs78 in the early week, but slight recovery in the dollar’s value in the world markets, forced it to surrender gains versus the local currency. However, the week observed sharp fluctuation in the rupee/euro parity in the open market.

On the opening day of the week, the rupee slightly lower versus the dollar in the inter-bank market changing hands at Rs60.07 and Rs60.08 on May 8, as it shed one paisa over the last week close of Rs60.06 and Rs60.07. Balanced demand and supply of dollar on May 9, supported the rupee and helped it maintain a firm posture, showing no change versus the dollar, which changed hands at its overnight rates of Rs60.07 and Rs60.08 on the second day of the week.

Firmness prevailed for the third consecutive day in the inter-bank, where the rupee maintained its previous level and traded unchanged at Rs60.07 and Rs60.08 versus the dollar on May 10. Marginal improvement was seen on May 11 on improved supply of dollars. The rupee maintained its overnight firmness and traded at Rs60.06 and Rs60.07 after gaining one paisa over its previous day’s close. It further improved on May 12, gaining three paisa to trade at Rs60.03 and Rs60.04 versus the dollar. During the week in review, the rupee in the inter bank market showed a recovery of three paisa in low trading versus the demand.

In the open market, the rupee moved little versus the dollar trading at Rs60.17 and Rs60.22, compared to last week end’s Rs60.18 and Rs60.23 on the opening day of the week, strong supply position, which helped the rupee to gain one paisa against the dollar on May 8. The rupee recovered another two paisa on the second day of the week, changing hands at Rs60.15 and Rs60.20 versus the dollar on May 9. The rupee firmly held its overnight levels versus the US currency on the third day of the week in review trading unchanged at Rs60.15 and Rs60.20 on May 10.

On May 11, the local currency, however, shed three paisa against the dollar and traded at Rs60.18 and Rs60.23 on increased demand for dollar to meet the payment requirements. The rupee further shed two paisa for buying and seven paisa for selling on the fourth day of the week to trade at Rs60.20 and Rs60.30 on May 12. During the week, the rupee lost two paisa for buying and seven paisa for selling in the open market.

Against the European common currency, the rupee commenced the week on a negative note as the euro managed to maintain its rising trend versus the rupee, gaining 26 paisa versus the rupee at Rs76.40 and Rs76.50 on May 8, after trimming some gains as it was trading at Rs76.70 and Rs76.80 in the morning following its extending gains versus the dollar in the international markets. The euro had closed at Rs76.13 and Rs76.23 last week.

The rupee, however, managed to stage a strong recovery versus the euro on May 9, as the euro was sharply down versus the rupee after losing its value in the world markets. The euro shed 95 paisa versus the local currency changing hands at Rs75.75 and Rs75.85. The euro managed to recover its losing ground in terms of the rupee on May 10, touching the new high after gaining 75 paisa for buying and another 55 paisa for selling to trade at Rs76.50 and at Rs76.60.

But the rupee managed to gain sharply versus the euro on May 11, as the single European currency fell versus the dollar in the international markets. The rupee gained 37 paisa versus the euro trading at Rs76.12 and Rs76.52 on the third day of the week in review. On May 12, the euro crossed the barrier of Rs77 in the open market, after increase in its demand in the world markets. The rupee lost nearly 90 paisa versus the single European currency and traded at Rs77.05 and Rs77.15. Over the week, the rupee lost almost 92 paisa versus the European single common currency in the open market.

In the international financial markets, the dollar traded flat to slightly higher against major currencies on May 8, except against the yen, as investors halted their dollar selling ahead of the Federal Reserve policy meeting later this week, when the central bank is expected to raise interest rates again.

The euro was trading at $1.2712, down 0.1 per cent from last week close. It had traded as high as $1.2787 before surrendering all of its gains in the New York session.

In the euro zone, strong investor sentiment data for April supported forecasts for another rate hike from the European Central Bank in June. The dollar was up 0.1 per cent at 1.2277 Swiss francs while sterling was flat at $1.8588. The dollar pared losses against the yen to last trade down 0.8 per cent on the day at 111.63 yen. Bank of Japan Governor said that Japan was removing excess liquidity from the short-term money market and it would take another few weeks to complete the process.

On May 9, the dollar softened on expectations that the Federal Reserve will signal a pause in its near two-year campaign to tighten credit at monetary policy meeting, where it is widely seen raising interest rates for a 16th straight time. The Fed is widely expected to lift its benchmark overnight federal funds rate by a quarter-percentage point, from 4.75 per cent to five per cent, double the European Central Bank’s equivalent 2.5 per cent rate.

In late trading, the euro gained 0.4 per cent to $1.2750, moving closer to the one-year high of $1.2787 touched on May 8. Sterling was also up 0.4 per cent against the dollar, at $1.8659. Against the Swiss franc, the dollar fell 0.6 per cent to 1.2209 francs. Against the Japanese yen, the dollar fell 0.6 per cent to 111.05 yen. The US currency earlier fell to an eight-month low of 110.90 yen, with the Japanese currency supported by a media report that stoked expectations the Bank of Japan will raise interest rates as soon as July.

On May 10, the dollar trimmed losses in choppy trading, after a much anticipated US Treasury report on currency practices said China was not a currency manipulator.

The US currency earlier tumbled to fresh one-year lows against the euro and eight-month lows against the yen, as the Federal Reserve policy statement accompanying its interest rate hike failed to alter the market’s view the central bank is nearing the end of its tightening cycle.

The dollar rose to 110.42 yen after the Treasury report, trimming its losses after hitting an eight-month low around 110.11 yen just before the report. Still, the dollar was down around 0.5 per cent against the yen on the day. The euro wiped out its losses and surged to $1.2838, up from a $1.2751 post-Fed low, its highest in a year and up from around $1.2800 just before the Fed’s decision and statement. By late afternoon, the euro pared gains to trade at $1.2782, up 0.2 per cent from a day earlier. The dollar also slipped to one-year lows against the Swiss franc at 1.2128 francs, before trading back up to $1.2185.

The US Treasury Secretary John Snow said that the Bush administration was “extremely dissatisfied” with the slow pace at which China was adopting a more flexible currency regime. Analysts said the Treasury report did not ease protectionist sentiment in Congress and that the US legislature would probably go ahead with punitive bills on China.

In the statement accompanying the Fed’s quarter-percentage-point rate hike, the Federal Open Market Committee said it may need to raise rates further to keep inflation down, although further tightening would increasingly depend on the economy’s outlook.

The dollar jumped after the Fed lifted rates to five per cent as markets initially viewed the Fed’s statement as more hawkish than expected. The dollar’s rally, however, quickly faded as bearish sentiment on the currency persisted.

On May 11, the dollar sank to a 12-month low against the euro, pressured by market expectations that the Federal Reserve may take a breather in its two-year campaign to raise the US interest rates.

In late trading, the euro was up 0.4 per cent against the dollar at $1.2842, after climbing as high as $1.2872 — highest since May 2005, according to Reuters data. Against the yen, the dollar traded at 110.54 yen, nearly flat compared with previous day. Gold soared to another 25-year high, silver jumped to a quarter-century peak, while copper and platinum also set records, as traders bet on sustained dollar weakness and strong global demand for metals.

At the close of the week on May 12, the dollar sank to a one-year low against the euro and an eight-month low versus the yen, slammed by worries about a near-term end to Federal Reserve rate increases and widening US deficits.