October 02, 2006	Monday	Ramazan 8, 1427

THE local currency moved both ways in the local currency market versus the dollar and the euro this week The inter-bank trading remained suspended on the opening day of the week and the rupee/dollar parity rates were not issued as banks were closed for Zakat deduction being first day of Ramazan. Last week, the rupee in the inter-bank market had closed versus the dollar at Rs60.55 and Rs60.57.

On September 26, bearish trend was witnessed in the market as strong dollar demand prevailed. The rupee shed five paisa for buying and another seven paisa for selling to trade at Rs60.60 and Rs60.64. On September 27, the rupee managed to recover its overnight losses and gained three paisa for buying and five paisa for selling to trade at Rs60.57 and Rs60.59, helped by the strong supply position. The rupee continued its upward trend on September 28 and further picked up three paisa to trade at Rs60.54 and Rs60.56.

On September 29, strong dollar demand by the corporate sector existed due to high oil payments but the rupee showed slight changes against the dollar in the inter-bank market and traded at Rs60.55 and Rs60.57, amid improved dollar supply. However it lost one paisa over the previous day’s close. The rupee in the inter-bank market did not show any major change versus the dollar this week.

In the open market, the rupee appreciated versus the greenback on easy availability of dollars on the opening day of the week. Sharp gain was seen in the open market on September 25, as the rupee rose versus the dollar, recovering 10 paisa to trade at Rs60.55 and Rs60.60 after closing last week at Rs60.65 and Rs60.70. Despite the increasing demand for the US currency on the week’s second day, the rupee did not show any change versus the dollar, which remained traded at Rs60.55 and Rs60.60 on September 26. Earlier in the session, however, it had touched the day’s lows at Rs60.62 at one point due to higher demand for dollars.

The rupee failed to hold ground and lost five paisa in relation to the dollar and traded at Rs60.60 and Rs60.65 on the third day of the week. The rupee remained unchanged at Rs60.60 and Rs60.65 due to sufficient supply of dollars on the fourth day of the week in review. The rupee continued its upward trend and posted fresh gain of two paisa versus the dollar to trade at Rs60.58 and Rs60.63 in the open market on the fifth day of the week in review. During the week, the rupee in the open market managed to gain seven paisa against the dollar.

Versus the euro, the rupee gained four paisa changing hands at Rs77.18 and Rs77.28 on the first day of the week in review, as against last week close of Rs77.22 and Rs77.32. The rupee extended its overnight firmness over the European single common currency on the second day of the week in review, gaining 33 paisa to trade at Rs76.85 and Rs76.95 on September 26.

The rupee continued its surge versus the euro on the week’s third day, gaining another 20 paisa on September 27, changing hands at Rs76.65 and Rs76.75. It traded unchanged on September 28, despite the fact that the single European currency is gaining ground versus the greenback in the global markets. The rupee shed 22 paisa versus the euro, trading at Rs76.75 and Rs76.85 on September 29. This week the rupee recovered 47 paisa against the European single common currency.

In the world financial market, the dollar gained against the euro on the weeks opening day, buoyed by unexpectedly resilient US home sales data, but moved little against most currencies as investors braced for a big week of US economic data. The American currency leapt to a session high against the euro after data showing a smaller-than-expected decline in existing US home sales for August. Gains were limited, though, with consumer confidence and inflation data still to come later in the week.

Major currencies have been trapped in narrow ranges for the past couple of months now as investors look for more clues on monetary policy after the Federal Reserve halted a two-year-long tightening policy in August. On September 25, the euro was down 0.2 per cent at $1.2750 in late New York trade, and earlier dipped as low as $1.2731 on electronic trading system EBS after the housing report. It also fell 0.3 per cent to 148.50 yen, more than two yen off its record peak above 150 set in August.

The existing home sales report showed sales fell 0.5 per cent in August, and the median home price fell for the first time since 1995. The dollar was barely moved on the day against the yen at 116.45 yen, while against the Swiss franc it was up around 0.2 per cent on the day at 1.2385 francs.

Sterling hit 3-week highs versus the dollar and matched a two-year peak against a basket of currencies after comments by a Bank of England policymaker cemented expectations of a November rate hike. The sounded fairly hawkish and sterling’s performance has reflected that tone. It was steady on the day at $1.9003, retreating off an earlier three-week high as the dollar got a boost from above-consensus US housing data.

On September 26, the dollar rose after a surprisingly strong reading in the US consumer confidence data softened speculation that a slowing economy may lead the Federal Reserve to cut interest rates. It rallied for a second straight session after the Conference Board said its index of consumer sentiment climbed in September. A stronger-than-expected reading from the Richmond Fed’s composite index also helped the dollar.

Given signs of a rapidly cooling housing market, many analysts think the Fed will be forced to cut rates in 2007.

The biggest mover of the session was the New Zealand dollar, which fell sharply after Finance Minister suggested in an interview with Bloomberg that the country’s central bank would not raise interest rates again. The kiwi dollar was down 1.6 per cent at $0.6685, its biggest daily percentage fall in three months. The dollar gained 0.5 per cent against the yen, trading at 117.15 yen. The euro last changed hands down half a per cent at $1.2685, near a session low of just above $1.2660.

Traders said the euro’s losses could gain momentum if the currency broke below a technical support level at $1.2630. The euro also slipped to a 15-month low against sterling, falling as low as 66.85 pence. The euro had already been under pressure after a gauge of German business expectations supported a view that the European Central Bank will end its cycle of interest rate increases in 2006.

Sterling rose to a 15-month high against a faltering euro, as the single currency took a hit from a gauge of German business expectations that tempered speculation about eurozone monetary tightening in 2007. The euro was down a third of a per cent against the pound at 66.85 pence – it’s lowest since July 2005. On a trade-weighted basis, which measures sterling’s performance against a basket of currencies, it hit a 2-year high of 103.7.

The pound was down a third of a per cent against the dollar at $1.8944, having hit a three-week high of $1.9074 on September 25. The dollar headed higher across the board after a stronger-than-expected reading in US consumer confidence data. The pound was bolstered on September 25 by a report in the Financial Times saying Bank of England Deputy Governor gave serious thought to another interest rate rise at this month’s policy meeting.

On September 27, the dollar slipped against the euro after a reading on July home sales was revised sharply downward, reviving speculation that the Federal Reserve’s next move may be an interest rate cut. The sharp decline in July sales was the worst reading since March 2003 and ultimately outweighed data showing that, in August, more new homes found buyers than the market expected. The dollar briefly popped higher on the August number, but it then retraced those gains against the euro.

The euro was up nearly 0.2 per cent at $1.2705, having slipped to $1.2670 earlier in the session. Bank of New York currency strategist Michael Woolfolk put a more positive spin on the housing data, noting both existing and new home sales in August were better than expected. The housing data in any case failed to knock the euro out of the tight $1.2628-$1.2874 band that has prevailed so far in September. The dollar fared better against the yen, up 0.4 per cent at 117.53 yen.

Traders tied the move partly to the yen’s failure to get a bigger boost from Japan’s fiscal half-year end, which usually prompts Japanese investors to move money into domestic assets. The euro was up 0.6 per cent at 149.33 yen, boosted after freshly-appointed Japanese Finance Minister Koji Omi said he saw no need to act on the euro/yen exchange rate. The euro hit a record high above 150 yen last month, prompting some European finance officials to complain about what they see as an undervalued Japanese currency.

Sterling fell to a one-week low versus the dollar and slid from recent peaks against the euro after Bank of England policymaker David Blanchflower sounded a cautious note on the economy. It losses were accentuated by downward revisions to second quarter economic growth and the GDP deflator. Sterling was down 0.4 per cent on the day at $1.8861, around one-week lows. It also hit a one-week low against a trade-weighted basket of currencies at 103.30, after scaling a two-year high of 103.7 on September 26.

On September 28, tough talk on inflation from European policymakers lifted the euro to a one-week high against the yen but left it flat against the dollar despite slower-than-expected US growth in the second quarter. The euro hit 149.78 yen – it’s highest since last breaching the 150 level on September 19 - after ECB governing council members Axel Weber and Nicholas Garganas both signalled more interest rate hikes were needed to ward off inflation.

In late New York trading, the euro was trading at 149.60 yen, up 0.3 per cent on the day. The ECB has lifted rates now at 3 per cent, four times since last December and investors expect another quarter-percentage-point hike at its October policy meeting. That sentiment boosted the euro against the low-yielding Japanese currency, which remains vulnerable to “carry trades,” in which investors borrow yen cheaply then boost returns by selling them to buy higher-yielding currencies.