December 04, 2006	Monday	Ziqa'ad 12, 1427

THE local currency remained weak versus the American dollar and the European common currency in the local market amid fluctuating trend this week Heavy dollar- buying was seen exerting pressure on the rupee to break Rs61 barrier at times. Same was the case with the European common currency, which had already crossed Rs79 last week and is attempting to break Rs80 barrier this week.

Higher demand for dollar to meet import payments pushed the rupee down on the opening day of the week, as the rupee shed three paisa at the buying counter lost two paisa at the selling counter in the inter bank market, changing hands versus the dollar at Rs60.76 and Rs60.77 on November 27, against the previous week close of Rs60.73 and Rs60.75. High demand for dollar persisted on November 28. Local and foreign banks reportedly sold approximately 30-40 million dollars Consequently the rupee extended its weakness versus the dollar on the second day of the week in review, shedding five paisa to trade at Rs60.80 and Rs60.82.

Heavy dollar-buying by the importers forced the rupee to slide further by four paisa on the third day of trading with the dollar changing hands at Rs60.84 and Rs60.86 on November 29. Sliding trend continued in the inter-bank market on the fourth day, as the rupee shed two paisa versus the dollar for buying and one paisa for selling to trade at Rs60.86 and Rs60.87 on November 30.

The rupee failed to come out of the weakness due to persistent demand of the US currency on December 1. It continued its overnight weakness in relation to the dollar in the inter-bank market on Friday, shedding three paisa for buying and selling at 60.89 and 60.90.

In the open market the rupee moved both ways versus the dollar, losing three paisa at the buying counter and gaining three paisa on the selling counter to trade at Rs60.78 and Rs60.82 on November 27, against Rs60.75 and Rs60.85 in the previous weekend. The rupee remained almost stable versus the dollar and traded at its overnight levels of Rs60.78 and Rs60.83 on November 28.

The rupee failed to retain its overnight firmness on November 29, when it shed two paisa for buying and another seven paisa for selling to trade at Rs60.80 and Rs60.90 as a result of rising demand by the corporate sector. The rupee further lost four paisa for buying but retained its overnight rate for selling on November 30, changing hands at Rs60.84 andRs60.90 versus the dollar.

The rupee depicted slight change in relation to the dollar for buying and selling at 60.82 and 60.90 on the fifth day of the week in review.

Versus the European single common currency, the rupee continued its weakness and lost 15 paisa to trade at Rs79.55 and Rs79.65 on the first day of trading against last week close of Rs79.40 and Rs79.50. The rupee, however, managed to recover 35 paisa on the second day of trading, when it was seen changing hands at Rs79.30 and Rs79.40 versus the euro.

It failed to retain its overnight gains on the third day of the week in review and lost 50 paisa versus the euro to trade at Rs79.80 and Rs79.90. The rupee, however, managed to recover 20 paisa in relation to the euro on the fourth day of the week and traded at Rs79.50 and Rs79.60. The rupee came under pressure against the euro, losing 85 paisa for buying and selling at Rs80.35 and Rs80.45 on the fifth day of trading.

On the international front, the dollar fell to a 20-month low against the euro on the opening day of the week on continued concern that the euro zone interest rate outlook is more favourable than that in the United States. The US currency pared some of its losses after French Finance Minister said at a meeting of European finance ministers in Brussels that it was important for the euro zone to be "highly vigilant" following the dollar's recent decline. Investors are also gearing for US economic data scheduled for release later in the week.

The euro was the most important competitor to the dollar, but that he did not see it overtaking the greenback, analysts said. EBS, another source for currency prices, pegged the session high at $1.3180. The euro has now risen nearly 11 per cent on the year, having gained around 2 per cent since last week. The euro rallied above the psychologically important $1.30 level last weekend in thin volume with analysts citing positive sentiment about the euro zone's interest rate outlook compared with that of the United States and renewed concerns about diversification of reserves away from the dollar. In late New York trading on November 27, the euro was up 0.3 per cent on the day at $1.3131, after having earlier spiked up to a 20-month high of $1.3172. The dollar was up against the yen in volatile trade, gaining 0.2 per cent to 116.08, after bouncing from a three-month low of 115.37 yen, according to Reuters data. Sterling last traded at $1.9373, taking its gains since the start of this year to more than 12.5 per cent. It earlier hit a two-year peak of $1.9465 before slipping back.

On November 28, the dollar fell for the fifth consecutive session, sending the euro above $1.32 for the first time since March 2005, as US data supported expectations the Federal Reserve may cut interest rates early next year. Fed Chairman Ben Bernanke provided no support for the greenback, saying the US economy is poised to expand at a moderate rate and "uncomfortably high" core inflation should ease. His remarks were made at a meeting with business leaders in New York.

A government report showing October orders for durable goods and equipment fell 8.3 per cent - the biggest decline since July 2000 - helped send the greenback to a fresh 20-month low against the European currency earlier. The drop in orders was much steeper than expected.

The sell-off accelerated once the dollar weakened to $1.3180 per euro, traders said. The steep decline in the buck was a continuation of the trade that has been in place since after the durable goods report.

In late trading, the euro was 0.6 per cent higher at $1.3207. It earlier climbed as high as $1.3211, according electronic trading system EBS. Against the yen, the dollar was little changed at 116.09 yen. Since the dollar began weakening last week, the euro has strengthened by over 2 per cent, taking its gains for the year to around 11.5 per cent. US short-term interest rate futures also rose boosting the odds of an interest rate cut by the Fed in the first quarter of 2007 to above 50 per cent.

Against the low-yielding Japanese currency, the euro was at 153.25 yen, having earlier hit a lifetime peak of 153.29. The dollar fell to a two-year low against the sterling, or $1.9534, and within reach of a 14-year low of about $1.9555 to the pound. While racking up a succession of new highs, the euro has risen 9 per cent against the yen since the start of the year

On November 29, the dollar rose bolstered by a report showing faster US economic growth than previously estimated and warnings from European officials about the euro's recent surge. Against the euro, the dollar firmed for the first time in five straight sessions, but remained near fresh 20-month lows hit overnight. Also, sterling was only around a cent away from 14-year highs against the dollar.

The US gross domestic product report mitigated recent expectations the Federal Reserve would cut interest rates in the first quarter of 2007. Higher rates, particularly in short-dated deposits, make US securities more attractive and increase demand for the dollars The gains in the dollar were triggered in part by the good GDP report, but also, and more importantly, by the notion that the Fed may not need to cut interest rates in the first quarter of 2007.

In late trading in New York, the euro slipped 0.4 per cent to $1.3149. The greenback was already up against major currencies before the US data, recovering from recent sharp losses that were triggered by growing expectations of a Fed interest-rate cut to counter weakening growth. Weaker-than-expected US new home sales data caused a brief fall in the dollar against the euro, but failed to have any lasting impact on currency trading.

Over the last week, the euro had risen nearly 3 per cent against the dollar, bringing gains since January to more than 11 per cent. The dollar was up 0.25 per cent at 116.38 yen in volatile trading as some investors tried to break through the 116.50-yen level. The yen was supported early by surprisingly strong Japanese industrial output data that raised expectations the Bank of Japan might increase interest rates as early as December. Later, investors tried to break the pair out of the 115.50- to 116.50-yen range.

The dollar fell against the yen before dollar buyers again stepped in for another assault on the upper end of that band. The sterling traded down 0.3 per cent against the dollar at $1.9456. Earlier, the pound had climbed to a 2-year high of $1.9545, a few ticks away from levels hit just before the 1992 sterling crisis, when Britain had to abandon its participation in the European Exchange Rate Mechanism and sterling collapsed.

The dollar slid to a 14-year low against the British pound on Thursday, extending its broad slide amid concerns about a slowdown in the US economy and the possibility of an interest rate cut.