September 11, 2006	Monday	Sha'aban 17, 1427

THE local currency showed mixed sentiments versus the dollar and euro amid quiet trading in the local currency market this week. The week commenced on a positive note with the rupee displaying strength over the dollar and euro.

Despite short dollar supplies on account of Labour Day holiday in New York on September 4, the rupee managed to recover four paisa against the dollar in the inter-bank market on the opening day of the week in review, changing hands at Rs60.45 and Rs60.47. The market had closed previous week at Rs60.48 and Rs60.51.

Bearish trend was witnessed on September 5, when the rupee came under dollar buying pressure and lost two paisa to trade at Rs60.47 and Rs60.48 against the American currency. Slight improvement was observed in the supply of dollars on September 6, due to heavy inflows of remittances by the overseas Pakistanis, which helped the local currency to recover its overnight lost ground, gaining two paisa against the dollar, which traded at Rs60.45 and Rs60.46.

On September 7, the rupee overnight firmness over the US currency persisted due to improved dollar supplies. The rupee posted a marginal gain of two paisa to trade at Rs60.43 and Rs60.45. During this week, the rupee in the inter bank market showed five paisa gain against the dollar, when compared to last week close. In the past 12 months, however, the rupee in the inter bank market has lost 70 paisa versus the dollar. Last year, the dollar was at Rs59.73 and Rs59.74 on September 7.

In the open market, the rupee lost ground versus the dollar shedding five paisa from its last week close of Rs60.40 and Rs60.45 and traded at Rs60.45 and Rs60.50 on September 4. It extended further losses versus the dollar on September 5, when it shed two paisa more over its overnight levels to trade at Rs60.47 and Rs60.52. On September 6 and traded unchanged, amid dull trading.

On September 7, the rupee recovered two paisa against the dollar changing hands at Rs60.45 and Rs60.50. Over the previous week close, the rupee in the open market recovered five paisa versus the dollar this week so far. However in the past 12 months, the rupee has lost 40 paisa against the dollar. The dollar was at Rs60.05 and Rs60.15 on September 7, last year.

Versus the European single common currency, the rupee continued its downtrend and shed 21 paisa on the opening day of the week, changing hands at Rs77.41 and Rs77.51 against last week close of Rs77.20 and Rs77.30. It, however, managed to recover 14 paisa on the following day, when it traded at Rs77.27 and Rs77.37 on September 5. But on September 6, the rupee, unable to hold its overnight firmness versus the European single common currency, shed three paisa and traded at Rs77.30 and Rs77.40.

On September 7, the rupee rose by seven paisa and traded at Rs77.23 and Rs77.33 against the euro amid modest trading. This shows three paisa gain over the previous week close. Over the past one year, the rupee has shed Rs2.63 versus the European single common currency. The euro was at Rs74.60 and Rs74.80 on September 7 last year.

In the world financial markets, the US market was closed for Labour Day holiday on September 4. In Tokyo, the yen climbed on the opening day of the week, cheered by solid capital spending data that made some dealers think twice about betting Japanese rates may not rise again this year, a possibility which has weighed on the yen in the past two weeks.

The yen has struggled due to soft data on consumer prices and industrial output, which pushed it to a record low against the euro last week, but it got a reprieve after data showed Japanese firms increased capital spending by 16.6 per cent in the April-June quarter compared with a year earlier. Another factor supporting the yen was an enormous build-up in short positions in the currency, suggesting that the yen could get a lift if traders decide to unwind positions.

The dollar traded around 116.40 yen, down 0.50 per cent from around 117.10 yen in late US trading last week. It fell as far as around 116.35 yen, pulling away from a six-week high of 117.50 yen hit on electronic trading platform EBS last August 31. The yen edged up 0.3 per cent against the euro to 149.75 yen from around 150.30 yen in late US trading and off a record high of 150.73 yen struck on August 31 on EBS.

Traders said that the market could be gearing up for a short-covering rally in the yen after currency speculators upped bets against the yen to record highs last week, with net short yen positions rising to 88,329 contracts worth $9.46 billion. Trading activity was light ahead of a Labour Day holiday in the United States. The euro inched up 0.2 per cent against the dollar at $1.2860. Sterling stayed flat around $1.9062. It had hit a three-week high of $1.9092 on August 31.

On September 5, the yen climbed across the board for a third straight session, extending gains on speculation that the Bank of Japan may raise interest rates again this year. The dollar strengthened against major European currencies, after a series of soft data in the services sector helped trigger a bout of profit-taking following solid gains in the euro and pound last week. The dollar failed to make any ground against the yen, which rallied across the board.

Traders bought back yen to cover short positions, or bets on further yen weakness, after data on September 4 showed that Japanese firms in the last quarter boosted capital spending at the fastest pace in nearly five years. The dollar stood at 115.95 yen, barely changed on the day after hitting a two-week low of 115.57 yen on electronic trading platform EBS. The US currency fell around 1 per cent against the yen on the opening day of the week.

The dollar was up 0.5 per cent to 1.2335 Swiss francs, while sterling declined 0.7 per cent to $1.8935, on pace for the biggest daily fall in almost two months.

The euro was down around 0.4 per cent at $1.2815, in the wake of data showing growth in the euro zone service sector cooled more than expected last month to its weakest pace since January, after hitting a six-year peak in June. The euro was down 0.4pc on the day at 148.70 yen, around two yen below a record high hit last week.

The yen had slumped to record lows against the euro, and eight-year lows against sterling and the Swiss franc last week on a view that the BoJ was likely to stay on hold this year after raising rates for the first time in six years in July.

Data from the International Monetary Market showed last week that speculators’ net short yen positions had jumped to a record, suggesting that market positioning may have become too one-sided and a price correction was due.

Sterling fell against the dollar and held near recent peaks versus the euro with slower service sector growth indicating last month’s surprise interest rate rise may be starting to bite. It was also subject to position squaring as US markets got back to normal after Labour Day holiday on September 4.

A recent run of robust housing data led to speculation that British interest rates could rise again as early as November, sending sterling to 8-1/2 month peaks versus the euro and three-week highs against the dollar last week. Sterling had fallen around half a per cent to $1.8963, pulling back from three-week high of $1.9092 hit last week.

On September 6, the dollar rose broadly after data on labour costs and growth in the service sector bolstered the case for the Federal Reserve to increase interest rates. The dollar got a boost from data that showed unit labour costs in the second quarter grew 5 per cent compared with the same period a year ago, the largest gain since the third quarter of 2000.

The euro was trading down 0.1 per cent at $1.2805 in New York trade, above a session low of $1.2770 on electronic trading platform EBS. The dollar briefly pared most of its gains versus the euro after the Federal Reserve’s Beige Book survey showed that five of the 12 Fed districts reported slowing growth, and said that a broad rise in energy costs did not appear to be boosting inflation. Against the yen, the dollar climbed to highs of 116.90 yen before retracing to 116.65 yen, still up 0.5 per cent.

In Tokyo, the yen eased against the dollar and euro, taking a breather from a short-covering rally that pushed the Japanese currency to two-week highs earlier this week. The yen had rallied after solid Japanese capital spending data on the week’s opening day prompted traders to trim huge yen short positions that had piled up since late last month when Japan’s consumer price data for July came in below expectations. But it was rally fizzled out this session as such yen-buying subsided and as Japanese investors snatched up dollars and euros, attracted by their higher yields, traders said.

The dollar stood at 116.35 yen as, up from around 116.10 yen in late US trading on September 5, and off a two-week low of 115.57 yen hit on electronic trading platform EBS. Against the dollar, the euro was little changed at $1.2812.

The Australian dollar fell after data showed that Australia’s second-quarter gross domestic product grew a smaller-than- expected 0.3 per cent from the previous quarter. The Australian dollar stood at 76.80 US cents down from around 77.10 cents in late New York trading.

Turbulence surrounding the leadership of British Prime Minister Tony Blair and uncertainty over British interest rate prospects hit sterling, sending it to two-week lows against the dollar and the euro. Sterling has now given up a large part of its gains from last week. It fell more than two thirds of a per cent against the dollar to hit a session low of $1.8796, the lowest since August 18. Against the euro, it touched a low of 68.03 pence as the single currency also received a boost from heightened rate rise expectations in the eurozone.

The dollar inched up to 116.70 yen from 116.65 yen late in New York, pulling away from a low of 115.57 yen hit earlier this week after a report showing strong Japanese capital spending. The euro rose 0.2 per cent to 149.66 yen rebounding from this week’s low of 148.25 yen and heading back towards its lifetime peak of 150.73 yen struck on electronic trading platform EBS last week. Those gains helped the euro climb to $1.2825 from $1.2805 late in New York, though it remains mired in its range of the past five weeks between $1.2690 and $1.2940.

The pound found its footing around $1.8850 after sliding more than one per cent in the past two days on soft economic data and worries about building pressure on Prime Minister Tony Blair to give a timetable for leaving office. For the year, the dollar has shed 8.7 per cent against the pound and 7.6 per cent versus the euro but just 1 per cent against the yen. Market players are mainly keeping an eye out for potential triggers to jolt currencies out of their lethargy.

On September 7, the dollar steadied after getting a boost the previous day from a surprisingly big jump in US labour costs that suggested the Federal Reserve may have to raise interest rates further. The 5 per cent jump in unit labour costs during the second quarter raised the prospect that rising wage pressures would prompt the Fed to resume the string of rate increases it paused last month at 5.25 per cent. Overall, major currencies remain stuck in tight ranges as market players see the Fed likely to hold rates steady, the European Central Bank tightening policy more in the coming months but the Bank of Japan taking a go-slow approach to lifting rates.

Sterling fell half a per cent to hit a one-month low against the dollar as the greenback strengthened against the euro, with added pressure from turbulence in Britain’s ruling Labour party. The pound was down around half a per cent on the day at $1.8736 - having hit a low of $1.8708, last seen in early August. It hit a two and a half week low against a trade-weighted basket of currencies at 102.0. The dollar was up half a per cent against the euro at $1.2738 as recent strong US data suggested another Fed rate hike was likely.