July 10, 2006	Monday	Jumadi-ul-Sani 13, 1427

MIXED sentiments were witnessed in the local currency market this week where the rupee moved both ways versus the dollar. The rupee started the new fiscal year 2006-07 on negative note in the inter-bank market, opening the week with three paisa increase versus the US dollar amid tied dollar supplies due to holidays in the US financial markets.

The dollar was seen changing hands at Rs60.23 and Rs60.25 on July 3, against past week’s Rs60.20 and Rs60.26. The rupee mostly held its overnight levels versus the US currency at Rs60.23 and Rs60.25 on July 4.

The rupee gave up its overnight firmness in the inter-bank market on July 5, shedding three paisa versus the dollar for buying and selling at 60.26 and 60.28, respectively. Dollar supply was tight due to the US market closure on account of the Independence Day. Firm trend persisted on July 6 as the rupee held its overnight levels versus the Rs60.26 and Rs60.28. On July 7, the rupee shed one paisa versus the dollar to trade at Rs60.27 and Rs60.29. During the week in review, the rupee in the inter bank market lost seven paisa versus the dollar.

In the open market, the rupee did not show any change versus the dollar on the opening day of the week and traded unchanged at its last week close levels of Rs60.60 and Rs60.65 on July 3. On July 4, bullish sentiment prevailed in the open market as it managed to recover 10 paisa versus the dollar for buying and selling at 60.50 and 60.55, despite the tight supply of dollars due to holiday in the United States on account of Independence Day. The rupee further managed to gain ten paisa against the dollar on July 5, and traded at Ra.60.40 and Rs60.45 amid low trading activities in the open market.

However on July 6, the rupee failed to maintain its overnight gains, losing 10 paisa, changing hands at Rs60.50 and Rs60.55 against the dollar as trading activities gained momentum amid tied dollar supplies. Bearish sentiment resurfaced in the open market on July 7, as the rupee dropped eight paisa in single day versus the dollar and traded at Rs60.58 and Rs60.63.Over the previous week close, the rupee lost two paisa versus the dollar in the open market this week.

The rupee moved both ways against the dollar and drifted sharply lower versus the European single common currency in the open market this week. On the back of positive outlook in the overseas market, the euro picked up nearly rupee one against the local currency trading at Rs77.20 and Rs77.30 on the opening day of the week in review, compared to last weekend’s Rs76.18 and Rs76.28. On the week’s second day, the rupee did not fluctuate sharply versus the euro and traded at Rs77.21 and Rs77.31. It, however, managed to gain by 27 paisa versus the euro on third day to trade at Rs76.94 and Rs77.04.

The rupee further managed to recover six paisa versus the single European currency on the fourth day of trading, when it was seen changing hands at Rs76.88 and Rs76.98. Finally On the fifth day of the week in review, the rupee lost 28 paisa against the euro changing hands at Rs77.16 and Rs77.26. This week the rupee lost Rs1.08 against the European single common currency.

In the international financial markets, the dollar on July 3 fell to its lowest against the euro in almost four weeks after a survey showed the US manufacturing output grew more slowly than expected in June, reinforcing concerns about a slowdown in the sector.

But the dollar posted modest gains against the yen and sterling as thin trading conditions ahead of the US Independence Day holiday on July 4 led to sharp swings in currency prices. Adding to signs that the economy was cooling, a monthly survey by the Institute for Supply Management showed that factory activity in June grew at the slowest pace in 10 months.

Another report on showed US construction spending in May fell 0.4 per cent, undershooting the consensus forecast for a 0.2 per cent increase. The surveys reinforced the view the economy may be slowing down, a view that received added credence last week when the Federal Reserve followed up its 17th quarter-percentage-point hike in interest rates in two years by saying slower growth could help contain inflationary pressures. That sparked speculation that the Fed could break its campaign to raise interest rates in August. In New York trade, the euro was up around 0.2 per cent on the day at $1.2810, after earlier climbing as high as $1.2823, it’s highest since June 7.

The euro was supported by data showing a June euro zone manufacturing index reaching its best reading in six years, the currency hit a new record high versus the yen of 147.05 before edging back to 146.75. The dollar fared better against the pound, with sterling down around 0.3 per cent at $1.8415. Some analysts said that recent data suggesting sluggish growth in the US manufacturing sector did not necessarily point to a more dovish Fed, especially if oil prices stay at elevated levels.

Against the yen, the dollar was up 0.25 percent on the day at 114.70. Earlier, an upbeat reading in the Bank of Japan’s Tankan business sentiment survey raised expectations that the Bank of Japan would raise interest rates for the first time in six years in July.

That helped buoy the yen to as strong as 114.10 to the dollar, but the currency quickly surrendered its gains after government officials urged the BoJ to keep its zero interest rate policy. Against the Mexican peso, the dollar was down about two per cent at 11.1025, on its way to its biggest one-day decline in six years despite a Mexican presidential election.

On July 4, the euro hovered near a one-month high against the dollar and a record peak versus the yen after data suggested the prospects for higher interest rates have lessened in the United States but risen in the euro zone. It hit its highs in the previous session after the euro zone manufacturing index for June showed its best reading in six years, while separate data showed US factory activity in the same month grew at the slowest pace in 10 months. The stronger-than-expected production data for Europe supported expectations that the European Central Bank could accelerate the pace of rate hikes.

The euro was little changed at $1.2805 after rising as high as $1.2823 on July 3, its highest since June 7. The single currency was also nearly flat at 146.80 yen, in sight of the all-time high of 147.05 yen struck on trading platform EBS in the previous session. The dollar edged down to 114.60 yen from around 114.70 yen in late New York trade, dented as Japanese exporters stepped up to sell the US currency. Dealers said that trade was thin and market players hesitated to take aggressive positions because US financial markets were closed for the Independence Day holiday.

In London, the euro hit a four-week high against the dollar and a two-month peak versus the Swiss franc on growing expectations that the European Central Bank could signal a faster pace of interest rate increases. The yen remained near the previous day’s record low against the euro with Japanese government officials reasserting their view that interest rates should be kept at zero for now. Although most investors still expect a hike at the Bank of Japan’s meeting next week, analysts say such a move is already priced in and thus would offer limited scope for yen upside, while there is potential for a sell-off if there is no move.

The euro hit the four-week high of $1.2823 before trimming gains to $1.2796 on the day. The euro also hit a two-month high against the Swiss currency at 1.5690 francs. Against the yen, the euro was broadly steady at 146.69, having hit the record high of 147.04 on July 3. The dollar was a touch softer at 114.58 yen. Analysts said that comments from BOJ Governor Toshihiko Fukui that the question of raising rates was “completely open” had, if anything, cast a shadow of doubt over next week’s hike.

Sterling was up 0.27 per cent against the dollar at $1.8471 and also gained a quarter per cent versus the euro at 69.30 pence - not far from a two-month low at 69.58 hit a day earlier.

On July 5, the dollar gained against the euro and yen after a report on private-sector US employment showed solid job growth in June, but the US currency’s bounce was likely to be short-lived. The employment data initially suggested weekend’s monthly US payrolls report to reflect similar strength and build the case for more interest rate hikes from the Federal Reserve. In New York, the euro had pared some of its losses and was last down 0.4 percent at $1.2731, but above an intraday low of $1.2702, its lowest since June 30, the day after the Fed followed its 17th consecutive quarter-point rate hike with a statement saying slower growth may ease inflationary pressures.

Against the yen, the dollar was last up 0.8 per cent at 115.73 yen. After the North Korea news and ahead of the ECB meeting, the euro was at 147.35 yen, up 0.3 percent and just shy of the peak for the day at 147.39, it’s highest since the single currency was launched in 1999.

On July 6, the dollar fell against the euro on after European Central Bank President pledged “strong vigilance” in curbing inflation which reinforced expectations for another rate hike. The ECB left rates at 2.75 per cent, but Trichet’s comments hinted at a possible rate hike in August, boosting the euro as investors positioned for at least two more increases in euro zone rates this year.

The euro rallied sharply against the dollar after Trichet’s remarks, hitting a session peak of $1.2784, before paring some of its gains to reach $1.2777 in New York, but was still up over 0.4 per cent. The euro also carved out a fresh record high of 147.40 yen before drifting to 147.13 yen, unchanged on the day. Against the yen, the dollar was down 0.46 per cent at 115.14 yen, as safe-haven buying on security concerns in Asia subsided a bit, a day after the US currency was boosted by missile tests in North Korea.

At the close of the week on July 7, the dollar stalled in quiet trading as traders counted down to vital US jobs data due later in the session that could bolster the argument for the Federal Reserve to keep raising interest rates. The euro held on to most gains made after the European Central Bank signalled it was prepared to step up the pace of rate rises, keeping the currency in sight of a one-month peak against the dollar and a record high versus the yen.