September 25, 2006	Monday	Ramazan 1, 1427

ON the opening day of the week, the rupee was not able to maintain its weekend level following the excessive dollar-buying by importers to meet the oil payments. Both local and foreign banks were active and bought nearly $35-45 million to meet the demand, it is also expected that the rupee might show further weakness on fundamentals basis.

Importers’ demand for dollar pulled the rupee to touch the lowest level since November 2004 versus the US currency in the inter-bank market, losing six paisa for buying at 60.56 and shedding eight paisa for selling at 60.60on September 18 against previous weekend’s Rs60.50 and Rs60.52.

The rupee did not show any change for buying at 60.56 while it moved up with an increase of two paisa for selling at 60.57 on September 19. After maintaining a firm trend for one day, persistent demand for dollar pushed the rupee down on September 20. The rupee shed two paisa versus the dollar for buying at 60.58 and also slid three paisa for selling at 60.60. On September 21, the rupee picked up two paisa against the dollar for buying and selling at 60.56 and 60.58 as dollars’ supply was enough to meet the demand,

Easy supply of dollars made the rupee able to extend its gains versus the greenback on September 22, as bullish trend persisted in the inter-bank market, where the rupee picked up three paisa versus the dollar for buying at 60.53 and gained two paisa for selling at 60.56.

In the open market, the rupee drifted lower, losing 17 paisa versus the dollar to trade at Rs60.72 and Rs60.77 on September 18. The rupee had closed last week at Rs60.55 and Rs60.60. Earlier, the rupee recorded a steep decline on the week’s opening day. At a point, during the day, the rupee hit the lowest level at Rs60.90. On September 19, dollar demand remained higher. The US currency maintained its surge due to higher demand by the inter-bank market to meet the quarter-end payment requirement. As a result, the rupee dropped by 13 paisa and traded at Rs60.85 and Rs60.95.

On September 20, however, the rupee managed to gain five paisa versus the dollar. It was seen changing hands at Rs60.80 and Rs60.90. On September 21, the rupee managed to hold its overnight firmness over the US currency. It recovered 10 paisa for buying and 15 paisa for selling to trade at Rs60.70 and Rs60.75. The rupee further recovered two paisa versus the dollar and traded at Rs60.68 and Rs60.75 due to sufficient supply of the US currency on September 22. As compared to previous weekend, the rupee lost 13 paisa on buying counter and another 15 paisa on selling counter against the dollar this week in the open market.

Versus the European single common currency the rupee dropped by 35 paisa in the open market, changing hands at Rs76.90 and Rs77.00 on September 18, after closing at Rs76.55 and Rs76.65 last week. On September 19, the rupee reacted negatively versus the euro in the local market, further shedding 25 paisa to trade at Rs77.05 and Rs77.15 on the second day of the week in review. The rupee, however, recovered 11 paisa in terms of the euro and traded at Rs76.94 and Rs77.04 on the third day.

Unable to hold its overnight firmness it depreciated versus the euro, losing 21 paisa on the fourth day of the week in review to trade at Rs77.15 and Rs77.25 as the US currency failed to show firmness versus the world major currency units on September 21. The rupee extended its weakness and lost 30 paisa in relation to the euro changing hands at Rs77.46 and Rs77.56 on the fifth day of the week in review. During the week, the rupee in the local currency market shed 91 paisa against the European single common currency.

In the international financial market, the dollar hit a five-month peak against the yen on the opening day of the week after a weekend meeting of finance ministers from the Group of Seven richest countries produced no new calls for Asian currencies’ appreciation. That helped the dollar shrug off data showing a worsening in US finances, though the greenback fell against the euro, which gained on comments from euro zone policy officials that helped cement the case for higher euro zone interest rates.

On September 18, the dollar was up against the yen by 0.2 per cent at 117.85 yen, off a five-month peak of 118.28 in New York trading. The euro was up 0.4 per cent at $1.2703, having bounced from an intraday low of $1.2632, and was up 0.6 per cent against the yen at 149.72 yen. The euro edged higher against both the dollar and the yen as investors gradually turned their sights from the outcome of the G7 Federal Reserve policy meeting scheduled for September 20.

The Fed is widely expected to leave US interest rates at 5.25 per cent for a second meeting in a row. That calls into question the dollar’s ability to keep rallying, especially when the European Central Bank is expected to keep pushing rates higher. Sterling erased early gains to stand down on the day with investors focusing on the release of the Bank of England’s minutes from its September meeting due this week for clues on the UK interest rate outlook. It was up around 0.15 per cent at $1.8775. Against the broadly firmer euro it was down a quarter per cent at 67.49 pence.

The G7 did not single out the yen in its communiqué, which dampened a rally in the Japanese currency sparked by ECB President, who told reporters the G7 agreed the yen would reflect Japan’s economic recovery. Japanese Finance Minister said the yen’s recent drop to record lows per euro had been a bit “wild.” The muted reaction was in sharp contrast to the last G7 meeting in April, which prompted a steep fall in the dollar after calls for Asian countries including China to let their currencies rise to help resolve trade imbalances.

With the G7 meeting out of the way, investors are showing greater appetite for risk and seeking higher-yielding investments, which they finance by selling lower-yielding currencies such as the yen. The euro’s rise was also triggered in part when the ECB Governing Council member Klaus Liebscher said he saw a “rising danger of rising inflation,” adding to a string of recent hawkish comments from the ECB policymakers

The dollar managed to overlook a report from the Treasury Department that showed net capital inflows into the US assets hit their lowest since May 2005 in July and did not come even close to covering the record $68 billion trade gap for that month. The Swedish crown, meanwhile, rallied after an election win by the opposition centre-right alliance, which had vowed to cut taxes and trim back the welfare state to boost jobs.

The crown was up 0.2 per cent on the day at 9.1994 per euro, off earlier two-month highs of 9.1550 but well short of the 1 per cent rally forecast by analysts in a Reuters poll in case of an alliance win.

On September 19, the Thai baht staged its largest one-day fall in three years after Thai armed forces ousted the prime minister, sparking a broad decline in a number of Asian currencies. The yen retained most of the day’s gains against the euro after a European official said markets had yet to digest policy-makers’ remarks calling for the yen to rise against the euro. But the Japanese currency eased around half a yen from session highs against the dollar after the Thai news, tracking a sharp decline in the baht.

Some strategists viewed the move as a simple knee-jerk reaction, as the more-liquid Japanese currency sometimes trades as a proxy for less flexible Asian currencies. Developments in Thailand overshadowed US data earlier that showed a surprisingly large fall in housing starts and the rate of wholesale inflation that weighed on the dollar.

The dollar was last at 117.57 yen, off 0.4 per cent on the day but up from 117.05 before the news of the Thai emergency. Emerging Asian currencies were hit harder. Against the Thai baht the dollar rose to 37.76 baht, up from 37.305 and up 1.3 per cent on the day in the largest daily rise since October 2003.

The euro was last at $1.2678, down about 0.2 per cent. Markets are gearing up for the European Central Bank to hike interest rates again this year, while the Federal Reserve is expected to signal at its meeting that it will keep rates at 5.25 per cent for the rest of the year. Against the Singapore dollar, the US currency was up 0.3 per cent at 1.5906 Singapore dollars and against the Philippine peso, the dollar was up 0.1 per cent at 50.030 pesos.

Sterling rose against a weaker euro as the single currency was hurt by comments from a European official who said markets may need time to digest policymakers’ message that a stronger yen versus the euro is desirable. The pound was up around a third of a per cent at 67.30 pence per euro. The pound was up around 0.4 per cent versus the dollar at $1.8876.

On September 20, the dollar was little changed against the euro and Swiss franc and off the day’s lows against the yen after the Federal Reserve left interest rates unchanged for the second straight meeting and said inflation risks were moderating. As widely expected, the central bank’s policy-setting Federal Open Market Committee voted to keep its overnight federal funds rate target at 5.25 per cent, the level reached in June after 17 straight increases stretching over more than two years

In New York, the dollar was down 0.2 per cent against the yen, at 117.48 yen, while the euro was little changed at $1.2686, having hit a session high of $1.2728. The pound was last up 0.3 per cent against the dollar at $1.8868. Dollar/Swiss was little changed at 1.2519 Swiss francs. Sterling firmed towards 2006 highs against the euro after minutes from the Bank of England’s latest policy meeting and strong UK mortgage data kept expectations for a November rate rise intact. Against the dollar, it was up a third of a per cent on the day at $1.8877.

On September 21, the dollar slid, suffering its worst decline against the euro in two months, after a report showed business activity contracting in the US Mid-Atlantic region in September for the first time in over three years The euro was up 0.8 per cent at $1.2788, its biggest one-day percentage advance in two months. The dollar dropped to 116.29 yen, for a 0.9 per cent fall on the day, making it the US currency’s biggest one-day decline since September 4. It had traded at 116.80 just before the Philly Fed report.

The dollar had its biggest daily loss against a basket of major currencies since late July. Sterling hit a two-year high against currencies of major trading partners and a 15-month peak versus the euro, buoyed by expectations the Bank of England would raise interest rates in November. It hit a two-week high of $1.8999, before trimming gains to $1.8958.

At the close of the week on September 22, the dollar hovered around two-week lows against the yen and the euro after data showed more signs of a slowdown in the US economy, keeping expectations high that interest rates will stay on hold. The Philadelphia Federal Reserve’s business activity survey for September showed its first negative reading in over three years, indicating a significant decline in manufacturing in the mid-Atlantic region. The data helped to drive the dollar down nearly one per cent against its two major rivals and dealers said that the US currency was becoming more vulnerable to soft economic figures.