February 05, 2007	Monday	Muharram 16, 1428

TRADING in local currency market remained suspended on January 29 and January 30 on account of public holidays being Ashura-e-Muharram. When the market opened on January 31, the inter bank market witnessed modest gain in rupee value as it picked up three paisa versus the dollar on comfortable supply position in the market. During the day the American currency traded at Rs60.70 and Rs60.72, amid dull trading. It had closed last week at Rs60.73 and Rs60.75.

On February 1, there was tight dollar supply position, as trading activities picked up. The market faced increased dollar demand by the importers, who entered the market to buy dollars to cover their payment requirements. The rupee was seen changing hands at Rs60.74 and Rs60.76 versus the dollar after shedding four paisa over its overnight levels.

Finally on February 2, the rupee managed to hold its overnight levels against the dollar in the interbank market trading unchanged at Rs60.74 and Rs60.75. During the week in review, the rupee did not show any major change in its value in relation to dollar. It fell by one paisa on cumulative basis over its previous week close levels.

In the open market, the rupee did not show any change in its weekend levels, when trading resumed in the local currency market on January 31, after observing Muharram holidays. The rupee/dollar parity traded unchanged at Rs60.85 and Rs60.95, amid dull trading. On February 1, the rupee managed to further recover five paisa, amid low dollar demand and sufficient dollar supply. At close the dollar was trading at Rs60.80 and Rs60.90.

The rupee continued its upward rising trend in relation to dollar in the open market on February 2. It further recovered five paisa and traded at Rs60.78 and Rs60.88 against the dollar. Over the week in review, the rupee managed to recover seven paisa against the dollar in the open market.

Versus the European single common currency, the rupee lost its firmness in on the first trading day of the week, shedding 16paisa to trade at Rs78.55 and Rs78.65, against previous week close of Rs78.39 and Rs78.49. The rupee extended its overnight weakness versus the euro on the second day of trading. It lost 45paisa more over its overnight levels and traded at Rs79.00 and Rs79.10.

The rupee resisted more losses versus the euro on the third trading day of the week. It managed to gain ten paisa, changing hands at Rs78.90 and Rs79.00 on February 2. This week, the rupee lost 51paisa versus the European single common currency.

In the international financial markets, the dollar scaled a four-year high against the yen on January 29, supported by solid US economic data that helped convince more investors that an interest rate cut by the Federal Reserve may not be necessary this year. This week sees a swarm of US economic data, in addition to a Fed rate-setting meeting when the central bank is widely expected to keep rates unchanged at 5.25 per cent.

Analysts said data pointing to a buoyant economy would further reduce the chance of a rate cut as the Fed stays on the lookout for inflation risks, which could translate into more dollar buying. The yen continued to struggle after soft consumer price figures late last week cast doubt on the likelihood of the Bank of Japan raising rates next month, which would keep the currency's yield lagging far behind its rivals.

The dollar climbed to 121.83 yen in Tokyo, up 0.2 per cent from late last week to hit its highest level since 2003. The dollar extended gains made last week, when data showed a pickup both in new home sales and US-made durable goods in December. Sluggishness in the housing sector had been fuelling speculation that the Fed may lower rates sometime this year. The euro was at $1.2903 near a two-week low of $1.2877 hit last week.

In London, the dollar was up 0.4 percent on the day at 122.06 yen, having earlier hit a 4-year peak of 122.19. Analysts said that on a technical basis, the breach of 122 yen had opened the door to fresh highs. The euro was steady against the dollar at $1.2918. The pound struggled towards the end of last week after rising to within a whisker of the psychologically important $2 level. It was down 0.1 per cent on the day at $1.9579, well below the 14-year peak of $1.9917 hit last week.

On January 30, the dollar exited North American trade, a touch softer against the euro as dealers awaited a deluge of US economic data that could shed light on the course of monetary policy. Strategists said investors were reluctant to take new positions before seeing the Fed's policy statement and parsing it for clues about future rate moves. In late trading, the dollar was off 0.1 per cent at 121.60 yen, still within reach of previous day’s four-year peak of 122.19 yen.

The euro was up 0.1 per cent at $1.2965. Negative sentiment continued to weigh on the yen and Swiss franc as carry trades in which investors borrow these low-yielding currencies to buy higher-yielding ones continued. The exception to the rule was the New Zealand dollar, the highest yielding among the world's most liquid currencies. It fell nearly one per cent to $0.6885 on a breakdown in technical support.

On January 31, the dollar fell against the euro and yen after the Federal Reserve kept interest rates steady, as expected, but said US price pressures and economic growth were likely to moderate.

The euro, which earlier had edged above the psychologically important $1.3000 level, extended gains to $1.3033, up 0.5 per cent in the session. The dollar was down nearly 0.8 per cent at 120.66 yen, extending losses that began after US Treasury Secretary said he is watching the value of the yen "very, very carefully." The euro was down 0.25 per cent at 157.26 yen. Chronic yen weakness has been a key theme ahead of next week's Group of Seven finance ministers meeting in Germany.

According to Reuters data, the euro has slipped about 1.8 per cent against the dollar since January 2, the first trading day of 2007. The greenback earlier rallied on data showing the economy grew at a 3.5 per cent pace in the fourth quarter, but weakened shortly thereafter as the National Association of Purchasing Management-Chicago said business activity in January was the lowest monthly reading since April 2003.

Beyond the US data, a continued focus on the value of the yen continued to dog the market. Earlier this week, the yen hit a four-year low at 122.20 per dollar and a record low against the euro, prompting complaints from European policymakers.

Sterling fell below $1.95, driven down by profit-taking from recent multi-year highs, corporates squaring their books ahead of month end and stronger than expected US growth data. It was down 0.7 percent on the day at $1.9489, retreating further from last week's 14-year peaks of $1.9917 and hitting levels last seen on January 12 - the day after the BoE's surprise rate hike.

On February 1, the dollar traded steady against the euro and yen as investors grew cautious ahead of the forthcoming US payrolls report and a Group of Seven developed countries meeting next week. The greenback earlier hit a three-week low against a basket of major currencies after the Institute for Supply Management's manufacturing index in January hit its lowest level since April 2003. But dollar losses were short-lived as investors quickly squared positions ahead of weekend’s jobs report, which could shed light on the future path of US interest rates.

In late trading, the euro changed hands a touch lower at $1.3019, while the dollar was unchanged at 120.69 yen, but off its session low of 120.11 yen touched after the ISM report's release. The yen has gained across the board as speculation intensified that G7 finance chiefs might discuss yen weakness at next week's meeting, a move that could prompt broad buying in the Japanese currency.

In London, the yen was up 0.3 per cent on the day at 156.87. The yen was also slightly up against the dollar at 120.42, moving further away from a four-year high around 122.20 hit on January 29.

The euro was slightly down on the day at $1.3014. The dollar failed to move substantially after the Federal Reserve held interest rates steady as expected and maintained a warning on inflation risks.

Sterling firmed against the dollar and euro, aided by strong UK manufacturing sector data that rekindled a debate about the prospect of further Bank of England monetary tightening. It got an extra boost back above the $1.97 mark after US manufacturing data came in below expectations. It was up 0.4 per cent on the day at $1.9712, still well away from 14-year peaks hit last week at $1.9917.

In Tokyo, the dollar was little changed near 120.70 yen rebounding from a low of 120.10 yen on February 1, but down from the four-year high of 122.20 yen struck earlier this week. The euro eased to 157.23 yen from 157.33 yen in late New York trade, off the peak of 158.62 yen struck last week - the strongest since the single currency was launched in 1999. The euro was flat at $1.3022 after climbing as high as $1.3054 on February 1, to match its strongest level in the past month.

In London, the euro was flat at $1.3023. The dollar was up 0.25 per cent at 121.02 yen, but down from the four-year highs of 122.19 yen struck earlier this week.