October 16, 2006	Monday	Ramazan 22, 1427

Divergent trend was seen in the currency market on the opening day as the rupee came under pressure versus the dollar in inter-bank market on tight dollars supplies as the foreign exchanges were closed in the US on account of the Columbus Day holiday. The rupee lost nine paisa for buying and six paisa for selling to trade at Rs60.63 and Rs60.64 versus the dollar on October 9, after closing the previous week at Rs60.54 and Rs60.58.

Despite strong inflows of remittances by the overseas Pakistanis, demand for dollar persisted in the inter-bank market on the second day. As a result, the rupee failed to come out of the weak spells on October 10, and shed two paisa for buying and three paisa for selling, changing hands at Rs60.65 and Rs60.67.

Slight improvement in the supply of dollar on October 11 enabled the rupee to recover from the previous day’s weak spell. The rupee gained one paisa to trade at Rs60.64 and Rs60.66 at close. The rupee extended further gains versus the US currency on October 12, recovering two paisa for buying at Rs60.62. It, however, remained unchanged at Rs60.64 on the selling counter.

The rupee firmness versus the dollar continued on October 13, when it further gained two paisa and traded at Rs60.60 and Rs60.62. In this week, the rupee on cumulative basis lost six paisa on the buying counter and four paisa on selling counter in the inter-bank market versus the dollar.

In the open market, the rupee strengthened versus the dollar, gaining seven paisa to close the week’s opening day at Rs60.53 and 60.63 on October 9, against previous week close of Rs60.65 and Rs60.70. But the rupee failed to maintain its overnight firmness and shed two paisa versus dollar at 60.60 and 60.65 on October 10. The rupee continued its decline versus the dollar on October 11, shedding two paisa for buying and seven paisa for selling to trade at Rs60.62 at Rs60.72.

On October 12, the rupee drifted lower on high demand of dollars by the importers to clear the payments. The rising dollar demand by the corporate sector pushed the rupee sharply down in the open market, losing 12 paisa for buying and seven paisa on the selling side to trade at Rs60.72 and Rs60.77. On October 13, dollars’ fresh arrival in the shape of remittances enabled the rupee to regain its lost ground versus the US currency.

Usually, the rupee mostly shows upward trend versus the dollar during Ramazan but this year, it has so far maintained a down trend as the dollars’ demand to meet the import payments has remained high. However, the rupee on the fifth day of the week managed to trim its losses versus the dollar in the open market, gaining seven paisa as it was seen changing hands at Rs60.65 and Rs60.70. At this level, it did not show any change over the previous week’s close, amid fluctuations, in the open market this week.

Versus the European single common currency, the rupee picked up six paisa on the first day of the week in review and traded at Rs76.24 and Rs76.34, after closing last week at Rs76.30 and Rs76.40. The rupee, however, lost 16 paisa on October 10, changing hands at Rs76.40 and Rs76.50 versus the euro. On October 11, the rupee managed to make a sharp recovery versus the European single common currency, gaining 64 paisa to trade at Rs75.96 and Rs76.

Versus euro, the rupee shed 15 paisa on October 12 to trade at Rs76.11 and Rs76.21. The rupee/euro parity maintained a fluctuating trend. On October 13, the rupee gained four paisa and traded at Rs76.15 and Rs76.25. During the week in review, the rupee in the local market remained range bound against the European common currency. It recovered 15 paisa against the euro, amid fluctuations.

In the world financial markets, the yen steadied against the dollar on October 9 in holiday-thinned trade, consolidating losses sparked by last week’s US jobs data and a North Korean nuclear test that earlier pushed the Japanese currency to a fresh eight-month low. The yen at one point slipped to 119.29 yen per dollar, its lowest level since February, after North Korea said it had successfully conducted a nuclear test.

In late New York trade, however, it had recouped some of those losses, with the dollar trading at 119.10 yen, up about 0.1 per cent on the day. Still the yen remained near its weakest level this year, and chart analysts said a dollar rise to 119.40 yen would pave the way for a break of the key psychological level of 120 yen.

The Japanese currency suffered its largest single-day decline against the dollar in 4-1/2 months on October 6, following a sharp upward revision in US payrolls growth and fresh lows hit overnight reflected the extent of deteriorating sentiment. The move on dollar/yen after payrolls and the North Korea test now places the focus on yen weakness in general.

The dollar surged against the Korean won to 963.50 won, up 1.55 per cent from last weekend, and on pace for its largest daily increases since December 2004. Outside of the yen, trading volumes were light with the US bond market observing the Columbus Day holiday. The US stock and foreign exchange markets remained open.

Sterling slipped nearly 0.2 per cent to $1.8678 after lower-than-expected growth in British wholesale prices. The euro was relatively unchanged on the day at $1.2603, after hitting a 2-1/2-month low of $1.2571 last weekend after the US payrolls data.

On October 10, the dollar rose broadly for the sixth consecutive session and hit a 2006 peak against the yen, boosted by the view that the US economy may not be as weak as initially thought. Rising Treasury yields also provided dollar support. The benchmark 10-year yield hit a three-week high, hinting at growing doubt among investors that the Federal Reserve would cut interest rates in the next few months.

The dollar was hovering just below its 10-month high at 119.78 yen, up 0.5 per cent on the day and near the psychologically important 120 yen level. Forex Capital Markets, one of the world’s largest FX retail platforms, said its order flow showed speculative positions against the yen outnumbering those in favour of it by seven to one. The euro last changed hands at $1.2530, down 0.5 per cent, while the dollar was near a five and a half month peak at 1.2707 Swiss francs, up 0.7 per cent on the day.

Upward revisions to US non-farm payrolls data released on Friday and softer oil prices have cast US growth in a rosier light, which has prompted heavy dollar buying.

Also, upbeat comments on the economy from Fed officials have the slimmed chances of a rate cut from the current 5.25 per cent in the coming months, though policy easing in 2007 is still thought to be inevitable. But with volatility having been so low for months, dealers were not willing to step in front of momentum in the dollar’s favour.

Sterling fell to its lowest level in over two months against the dollar and weakened versus the euro after data showing a wider-than-expected UK trade deficit in September cast further doubts over the likelihood of a November interest rate rise. It was down 0.7 per cent on the day at $1.8538 after hitting a 2-1/2 month low of $1.8528 earlier in the session. The euro rose as high as 67.68 pence.

On October 11, a renewed focus on inflation nudged the dollar higher versus the euro but news that a small plane had crashed into a New York building knocked it off multi-month peaks touched earlier in the session. US officials said they had no evidence that a small aircraft collision with an apartment building on Manhattan’s Upper East Side was tied to terrorism. But for traders, the memory of September 11, 2001, when two jets crashed into lower Manhattan’s World Trade towers, was enough to prompt a knee-jerk flight-to-safety bid.

In the FX market, the Swiss franc was the main beneficiary, as the dollar fell from a 5-1/2-month high at 1.2737 francs to around 1.2690 before recovering to around 1.2722 in late trade, up 0.2 per cent. The euro also pared losses against the dollar suffered when minutes from the Federal Reserve’s last policy meeting revealed Fed officials remain “quite concerned” about inflation. The euro was at $1.2518, down 0.1 per cent on the day but off a session trough at $1.2503. The dollar was up 0.1 per cent at 119.70 yen, off a fresh 10-month high at 119.83 yen.

Sterling slipped to 2-1/2 month lows against a dollar with investors unwilling to sell the US currency ahead of Federal Reserve minutes despite reinforced expectations that the UK rates will rise next month. It got a brief fillip after Bank of England Deputy Governor said in remarks to a newspaper he was determined to do whatever was necessary to bring consumer inflation back to target. It was changing hands at $1.8544, steady on the day. It had climbed as high as $1.8588 after the remarks, but stumbled on tough resistance and turned back towards the earlier 2-1/2 month low of $1.8519.

On October 12, a report showing an unexpected rise in the US trade deficit in August nudged the dollar off multi-month peaks against the euro and yen, though a sunnier US economic outlook capped the decline. Trading was choppy with dealers looking for the dollar to break through key psychological levels squaring off against others who think the greenback’s gains have gone far enough.

In late New York trading, the euro was up 0.3 per cent to $1.2551, though it remains close to 2-1/2-month lows at $1.2500 hit a day earlier, according to Reuter’s data. Dealers said automatic sell euros orders below $1.2500 would likely accelerate a move lower. The dollar was 0.3 per cent lower at 119.38 yen, off a 10-month high at 119.83 hit October 11.

Sterling was up 0.15 per cent on the day at $1.8566, around 20 ticks below levels seen before the MPC members’ testimony. On October 11, it hit a 2-1/2 month low of $1.8516.

At the close of the week on October 13, the dollar slipped against the euro and pulled back from a 10-month high versus the yen after St. Louis Federal Reserve President said he saw more risks of a growth slowdown than faster inflation. The comments caught the attention of market players after upbeat economic data and an array of comments from other Fed officials saying they were worried about inflation staying stubbornly high.