June 19, 2006	Monday	Jumadi-ul-Awwal 22, 1427

IN the local currency market, the rupee remained mostly bullish versus the dollar and euro despite sharp fluctuations towards the close of the week.

The inter-bank market witnessed bullish trend in the rupee/dollar parity on the opening day of the week, as the rupee managed to recover its ground versus the dollar gaining one paisa against the dollar trading at Rs60.16 and Rs60.18 on June 12. It had closed at Rs.60.17 and Rs.60.19 last week.

The upward trend in rupee/dollar parity persisted on the second day of the week in review, as slight improvement in dollar supply continued to support the rupee. The rupee further managed to recover two paisa versus the dollar, changing hands at Rs60.14 and Rs60.16 on June 13. The rupee did not show any sharp fluctuation in terms of dollar on June 14, as it managed to trade at its overnight levels of Rs60.14 and Rs60.16.

However, the upward trend in the rupee dollar parity reversed on June 15, as the rupee lost its firmness versus the dollar and shed four paisa to trade at Rs60.18 and Rs60.20 on strong dollar buying by the importers. Banks reportedly purchased nearly 30-40 million dollars to meet importers demand. Falling trend persisted in the inter-bank market on June 16, as the rupee lost two paisa against the dollar, which traded at Rs60.20 and Rs60.22, due to the year-end payments of import bills. During the week in review, the rupee in the inter bank market lost three paisa versus the dollar.

In the open market, the rupee posted fresh gain of two paisa against the dollar and traded at Rs60.50 and Rs60.55 on June 12, compared with last weekend’s Rs60.52 and Rs60.57. The rupee further picked up two paisa on June 13, changing hands at Rs60.48 and Rs60.53. The rupee managed to maintain its firmness over the dollar for the third day. It extended its overnight gains, recovering six paisa more to trade at Rs60.42 and Rs60.47 on June 14.

On June 15, the rupee held its firmness in relation to the dollar, and further gained two paisa, trading at Rs60.40 and Rs60.45. The rupee managed to recover another two paisa for buying and three paisa for selling to trade at Rs60.38 at Rs60.42 on June 16. Against the previous week close, the rupee in the open market this week managed to recover 14 paisa versus the dollar.

Versus the European single common currency, the rupee showed upward rising trend and further extended its last weekend’s gains versus euro on June 12, changing hands at Rs.76.15 and Rs.76.25 against last week close of at Rs76.30 and Rs76.60. The trend persisted on June 13, as the rupee managed to recover 30 paisa for buying and 35 paisa for selling to trade at Rs75.85 at Rs75.90 versus the euro.

On June 14, the rupee, however, failed to maintain its winning streaks versus the European common currency and shed 15 paisa versus the euro to trade at Rs75.95 and Rs76.05. The rupee extended its overnight weakness versus the euro on June 15, and lost 10 paisa to trade at Rs76.05 and Rs76.15. It lost another 20 paisa on June 16 and traded at Rs76.25 and Rs76.35 versus the euro. During the week in review, the rupee managed to recover five paisa versus the European currency.

In the international financial markets, the dollar climbed to one-month highs against the euro on June 12, as investors bought the greenback amid increased expectations that the Federal Reserve will raise interest rates again later this month.

In late New York trading, the euro fell 0.4 percent to $1.2588. The euro earlier plumbed a one-month low of $1.2567, down about 4 cents from a one-year high of $1.2979 touched a week ago, according to Reuters data. The euro trimmed losses against the dollar after the US budget data, although the greenback remained well-supported overall. Against the yen, the dollar was up 0.3 per cent at 114.36 yen, just off a six-week high of 114.72 yen hit last week. The dollar firmed 0.2 per cent against the Swiss franc to 1.2335 francs. Sterling was up at $1.8429.

On June 13, the dollar advanced to its highest level in seven weeks against the euro and yen, as nervous investors sought refuge in the greenback amid heightened global volatility and diminished investor appetite for risk. Higher-than-expected core US producer inflation reading for May helped fuel the unwinding of positions across global markets and boost the dollar, analysts said. The data supported expectations for an interest rate hike at the Federal Reserve’s monetary policy meeting later this month.

A number of Fed officials — including Chairman Ben Bernanke — have recently expressed discomfort with prospects for inflation, convincing investors the Fed will lift its key rate for a 17th straight time to 5.25 per cent at its June 28-29 policy meeting. Interest rate futures now fully reflect this and some analysts are even suggesting the Fed may not stop there.

In late trading, the euro was down around 0.4 per cent from a day earlier at $1.2535 after having earlier hit a seven-week low of $1.2530. The dollar rose to a seven-week high against the yen at 115.43 yen, before trading at 115.31 yen, up 0.8 per cent on the day. Against the Swiss franc, the dollar gained 0.4 per cent to 1.2391 francs, while sterling was down 0.5 per cent at $1.8325.

On June 14, the US dollar retreated after US March the US inflation report spooked short-term investors into taking profits on the dollar’s seven-day rally against the euro, traders said. Futures markets have fully priced in a quarter percentage point rate rise for federal funds on June 29, the 17th such increase in two years, and fed funds futures reflect a 50 percent chance the Fed will raise rates again in August. Expectations that the Federal Reserve will raise rates this month and possibly again at the following meeting, as well as a diminished appetite for risk in emerging markets, have boosted the US currency this week.

Dallas Fed President Richard Fisher and Fed Board Governor Susan Bies echoed the US central bank’s concern about inflation, saying in separate speeches that inflation is running at levels that cause discomfort. That enabled the dollar trim some of its losses late in the day. Markets are also expecting further euro zone rate hikes after the European Central Bank raised rates by 25 basis points to 2.75 percent last week. Investors, however, have scaled back their expectations for the pace of European monetary policy tightening after comments by the ECB President Jean-Claude Trichet following the last meeting.

By late afternoon, the euro was at $1.2591, up 0.4 percent. On Tuesday, the euro had plumbed seven-week lows at $1.2528. Against the yen, the dollar was at 115.05 yen, down 0.2 per cent. The dollar fell 0.6 per cent against the Swiss franc to 1.2316 francs, while sterling firmed 0.4 per cent to $1.8421. Currency markets will now turn their focus to the monthly US Treasury capital flows data due on Thursday to see if foreigners are still willing to finance the US current account deficit. Economists are forecasting net US inflows of $67.5 billion for April.

On June 15, the US dollar weakened against the euro, after a report showed April capital flows into the country dropped sharply, and were not enough to cover the US trade deficit. However, against a basket of major currencies, the dollar remained within striking distance of seven-week highs reached on June 13. Foreign investment in US assets in April, particularly from private investors, was the lowest in more than a year and unable to offset that month’s trade deficit for the first time since December 2005.

In New York, the euro was at $1.2631, up 0.2 per cent from previous day’s close but off session highs of $1.2658. On June 13, the euro hit a 1-1/2 month low of $1.2528. The dollar was down 0.2 per cent at 114.75 yen. Sterling hit a three-week high against the euro and rose more than half a per cent to a one-week high against the dollar, boosted by the strong UK retail sales and weak US data on capital flows.

British sales rose four per cent on the year, above a forecast for a 3.6 per cent rise, heightening expectations for a UK rate hike from 4.5 per cent. The dollar slid across the board after data showing net capital flows into the US in April fell far short of expectations. Sterling rose as far as $1.8547 and was trading at $1.8495, up a third of a per cent from the US close.

Weakness in the dollar for the second consecutive session was significant since the futures markets reflected increased chances of two more rate rises by the Federal Reserve later this month and in August. The drop-off in portfolio flows into US assets in April revived concerns about global economic imbalances emphasised by the Group of Seven rich nations, which met in April.

The US net capital inflows in April dropped to $46.7 billion from an upwardly revised $70.4 billion in March, and were dragged lower by a large downswing in private investment in dollar-denominated assets, data from the US Treasury showed.

The trade deficit in April was $63.4 billion. Analysts said the US net inflows numbers could worsen in May. Expectations for rising interest rates helped the dollar pull up from a one-year low against the euro at the start of the month, and from an 8-month trough versus the yen in May, but the rally is losing steam.

At the close of the week on June 16, the dollar dipped from seven-week highs struck against the euro and the yen this week as a rebound in global stock and commodity prices lured funds away from the US currency.