June 05, 2006	Monday	Jumadi-ul-Awwal 8, 1427

THE rupee/dollar parity remained under pressure this week. High dollar demand continued to exert downward pressure on the rupee in the local currency market, where the rupee was seen close to breach the Rs61 barrier versus the dollar in the early week.

In the inter-bank market, the rupee came under demand pressure in the early week but it managed to recover some grounds towards the close of the week. The rupee also continued to weaken versus the European single common currency.

The rupee touched the lowest level since October 19, 2004 versus the dollar in inter-bank market on the opening day of the week, shedding nine paisa for buying and six paisa for selling to trade at Rs60.29 and Rs60.31 on May 29, against last week close of Rs60.20 and Rs60.25. Importers’ rush for dollar caused the short supply position in the market and pushed the rupee down versus the greenback. Foreign as well as local banks reportedly bought nearly 40-50 million dollars to meet the payment requirements.

On May 30, the rupee resisted further decline versus the dollar and recovered five paisa on improved dollar supply. The dollar traded at Rs60.23 and Rs60.25 during the day. Despite the higher demand, the rupee extended further gains versus the dollar and picked up 10 paisa on May 31 on rising supply of dollar, when it traded at Rs60.13 and Rs60.15. On June 1, the rupee sustained its overnight firmness and traded at Rs60.11 and Rs60.13 after gaining two paisa against the dollar.

On June 2, the dollar demand by the corporate sector increased to cover its payment requirements in the inter-bank dealing, where the rupee shed four paisa versus the dollar for buying and another three paisa for selling to trade at Rs60.15 and Rs60.16, as the dollar moved little versus the major currencies ahead of the job report in the world market. During the week, the rupee managed to recover five paisa for buying and nine paisa for selling versus the dollar in the inter-bank market.

In the open market, the rupee lost eight paisa versus the dollar on May 29, changed hands at Rs60.55 and Rs60.60, compared to previous week’s Rs60.46 and Rs60.52. On May 30, the rupee continued its overnight weakness versus the dollar shedding 15 paisa for buying and 20 paisa for selling to trade at Rs60.70 at Rs60.80. The rupee held its overnight levels versus the dollar trading unchanged at Rs60.70 and Rs60.80 on May 31.

On June I, the rupee managed to recover 20 paisa versus the dollar, changing hands for Rs60.50 and Rs60.60. It, however, shed five paisa versus the US currency on June 2, when the dollar was seen trading at Rs60.55 and Rs60.65 on increased demand for dollar by the banks. Over the week, however, the rupee in the open market lost nine paisa on buying counter and thirteen paisa on selling counter versus the dollar.

Versus the euro, the rupee gained 20 paisa on the first day of the week, changing hands at Rs76.90 and Rs77.00, as against last weekend’s Rs76.70 and Rs76.80. The rupee, however, lost 80 paisa in relation to the euro trading at 77.60 and Rs77.70 on the week’s second day, as the single European currency gained ground versus the major currencies on the back of dollar’s falling in the overseas markets.

On the third trading day, the rupee lost 15 paisa and traded at Rs77.75 and Rs77.85 as the single currency showed its muscles on the back of dollar’s weakness. The rupee extended fresh gain of 80 paisa versus the euro on the fourth day of the week, trading at Rs76.95 and Rs77.05. It lost 25 paisa in relation to the euro and traded at Rs77.20 and Rs77.30 on the fifth day of trading. Over the previous week close, the rupee lost 50 paisa versus the euro this week.

In the international financial markets, financial markets in London and the United States, the world’s two biggest currency trading centres, were closed for public holidays on the week’s opening day. In Tokyo, the dollar slipped against the yen and euro in holiday-thinned trade on May 29, as investors grew more confident after recent market jitters, and as China announced new measures to cool its property market. The dollar hit session lows against the euro as China said it would tax proceeds from sales of houses sold within five years of purchase and increase the down payment on individual home mortgages.

The US currency ended higher last week as speculators unwound dollar-selling positions they had taken after the Group of Seven economic powers called last month for greater currency strength in Asia to help fix global imbalances. The dollar had also benefited from a sell-off in stock markets, emerging market currencies and commodities that caused investors to convert riskier holdings into cash, but analysts said that impulse was now fading. The dollar was down 0.4 per cent on the day at 112.24 yen. The US currency failed to break above 113 yen last week but kept some distance from an eight-month low just under 109 yen hit earlier in May.

The euro was up a quarter of a percent at $1.2762, but still more than two cents below its one-year high around $1.2970 hit in mid-May. The single European currency eased slightly to 143.25 yen.

The yen showed little response to Japanese retail sales data. Sales fell 0.6 per cent in April from a year earlier, compared with economists’ forecast for sales to drop 0.5 per cent.

On May 30, the dollar tumbled staging its biggest one-day fall in six months against a basket of major currencies after data showed that the US consumer confidence hit a three-month low in May. This helped erode the dollar’s brief bounce on news President Bush nominated Goldman Sachs Chairman Henry Paulson for Treasury Secretary.

The euro was at $1.2865 as of late afternoon in New York, up 0.9 per cent from previous days’ close. Sterling was on track to chalk up its biggest one-day gain against the dollar since September 2005, rallying as the US currency came under heavy selling pressure. It was up 1.4 per cent at $1.8855, heading back towards one-year high above $1.90 hit in mid May. The pound was on course for its biggest one-day jump since September 1 when the dollar took a hit after Hurricane Katrina devastated New Orleans.

Against the yen, the dollar was down 0.25 per cent at 112.15 yen, while sterling was up 1.3 per cent at $1.8835 in its biggest one-day climb in a month. Against the Swiss franc, the dollar was down 1.2 per cent at 1.2105 francs, while the dollar index, a gauge of the greenback’s value against the currencies of six major trading partners of the United States, fell 1.15 per cent, the biggest one-day fall in six months.

On May 31, the dollar climbed, hitting session highs after minutes from the Federal Reserve’s latest policy meeting suggested that the central bank was still concerned about inflation. Although the minutes from the May 10 meeting showed that policy makers were not certain how much more monetary tightening, if any, was needed, a mention that inflationary pressures were rising helped reinforce expectations for more rate rises. Reflecting a view that the Fed could extend its run of rate hikes from, as early as its next meeting in June, the two-year US Treasury yield shot to a 5-1/2 year high and the dollar rose across the board.

In New York, the euro was at $1.2810, down 0.5 per cent on the day, after earlier falling as low as $1.2805. The dollar was up around 0.4 per cent at 112.55 yen, while sterling was down 0.75 per cent at $1.8705. Against the dollar, it was down 0.6 per cent on the day at $1.8734, with the greenback gaining some support after Chicago PMI, a measure of business activity in the US Midwest region, unexpectedly rose in May.

On June 1, the dollar was little changed against the euro and the yen after a soft US manufacturing survey helped wipe out gains made on hawkish minutes from the Federal Reserve in the previous session. Dollar gains were also kept in check by a warning from the European Central Bank in its twice-yearly.

In New York, the euro was down 0.15 per cent at $1.2790, having fallen as low as $1.2722 earlier. The dollar was little changed against the yen at 112.65 yen. Earlier in the global session it had risen to just below 113.40 yen, it’s highest in almost a month, on follow-through buying.

At the close of the week on June 2, the dollar sat tight as investors hunkered down ahead of a closely watched jobless report that could help the Federal Reserve decide whether to bump up interest rates again later this month. The dollar was little changed on the day at 112.70 yen, off a high around 113.40 yen hit a day earlier. The euro edged up to $1.2815, well off the previous session’s low around $1.2720. The euro inched up to 144.45 yen from around 144.30 yen. The single European currency got a brief lift versus the dollar, and then pared the gain.

The dollar is down about 4.5 per cent against the yen and 7.5 per cent versus the euro this year partly on speculation that the Fed is nearly done with tightening monetary policy after lifting rates at every meeting since mid-2004.