IN the local currency market the rupee displayed its strength this week over the dollar. Though widening trade gap has pushed the dollars demand higher, increasing foreign exchange reserves as a result of higher inflows of overseas remittances and increased foreign direct and portfolio investment, on the other hand, has improved dollar supply, which has contributed to the strengthening of the rupee.

The inter bank market witnessed a steady trend on the opening day of the week as the rupee/dollar parity remained unchanged at its last weekend’s levels of Rs60.77 and Rs60.79 on February 12. On February 13, there was a slight increase in demand for dollar, which exerted downward pressure on the rupee. The rupee lost three paisa on the buying counter and two paisa on the selling counter as the rupee drifted lower against the dollar, losing three paisa for buying at shedding two paisa for selling to trade at Rs60.80 and Rs60.81 against the dollar.

Downtrend in the rupee/dollar parity persisted on the third day of the week in review. High demand for dollars by the corporate sector to meet importers’ payment requirements further pushed the local currency rate down on February 14. As a result the rupee lost four paisa for buying and five paisa for selling, changing hands at Rs60.84 and Rs60.86 against the dollar. However, dollar selling by the exporters on the fourth day helped improved the inflow of US currency in the market. The rupee managed to recover versus the dollar. It gained three paisa and traded at Rs60.81 and Rs60.83 on February 15.

The rupee continued its upward rising trend against the dollar on February 16. It recovered five paisa and traded at Rs60.76 and Rs60.77 on the fifth day of trading. Over the previous week close the rupee gained one paisa on the buying counter and two paisa on selling counter in the inter bank market this week.

In the open market, the rupee was unmoved against the dollar for buying, while it gained four paisa on the selling counter, to trade at Rs60.72, Rs60.78 on February 12. The rupee had closed last week at Rs60.72 and Rs60.82. The rupee managed to hold its overnight firmness for the second day as the dollar traded unchanged at Rs60.72 and Rs60.82 on February 13. The rupee traded unchanged on February 14 for the third day in a row.

The rupee/dollar parity remained stable for the fourth day as dollar demand and supply was in balance amid low trading activities on February 15.

On February 16, the rupee continued its upward rising trend and posted fresh gain of five paisa against the dollar changing hands at Rs60.67 and Rs60.77.

Versus the European single common currency, the rupee managed to gain 20 paisa on the opening day of the week in review, when euro traded at Rs78.55 and Rs78.65 against previous week close of Rs78.75 and Rs78.85.The rupee extended its overnight gains versus the euro on the second trading day of the week, as it further recovered five paisa and traded at Rs78.50 and Rs78.60. On the third trading day, the rupee, however, lost its firmness against the euro and shed 40 paisa to trade at Rs78.90 and Rs79.00.

On the fourth trading day the rupee further rose by 60 paisa in relation to the euro changing hands at Rs78.30 and Rs78.40. However, the rupee lost 95 paisa against the euro on the fifth day of the week in review and traded at Rs79.35 and Rs79.45 after the greenback sheds its gains in the global markets on February 16. This week, the rupee lost 60 paisa against the European single common currency on cumulative basis.

In the international financial markets, the dollar rose against the euro on February 12 and neared a four-year peak against the yen after G7 officials wrapped up a weekend meeting without sounding a formal alarm about the Japanese currency's persistent weakness. The yen hit a record low against the euro after the G7's statement, which called on investors to consider Japan's strengthening economy and be wary of one-way bets in foreign exchange.

In New York, the dollar was up 0.2 per cent at 121.90 yen after rising as high as 122.10 yen, a breath away from a four-year peak at 122.20 yen hit last month.

The euro briefly touched 159.00 yen, the highest level since the common currency's 1999 launch, but it subsequently backed off to 158.05 yen, down 0.1 per cent. The euro declined around 0.3 per cent to $1.2965, while the dollar gained 0.4 per cent against the Swiss franc to 1.2530 francs.

The Australian dollar was a notable loser after the Reserve Bank of Australia cut its inflation forecast for 2007, leading investors to scale back expectations that the central bank will raise interest rates in coming months. The Aussie dollar slipped 0.7 per cent to 77.15 cents. Sterling fell to a one-month low against a broadly stronger dollar, as an unexpectedly big fall in producer input prices cast some doubt on the rate of consumer price inflation and chances of more rate hikes. It was down 0.17 per cent on the day at $1.9466, off an earlier one-month low of $1.9438.

On February 13, the dollar declined against the euro, with the euro getting a lift from surprisingly strong eurozone growth data, which increased expectations that the European Central Bank will raise interest rates again next month.

A separate report showing a wider US trade deficit raised worries about the US growth outlook, further weighing on the greenback, while the yen rebounded as traders unwound bets against it ahead of key Japanese growth data due later in the week.

In New York, the euro was up 0.51 per cent at $1.3029 from $1.2963 a day earlier. Against sterling, the euro was up 0.7 per cent at 67.00 pence after data showed UK consumer price data fell sharply last month, raising doubts about whether the Bank of England will continue to raise interest rates. The dollar also slipped against the yen, falling 0.52 per cent to 121.25 yen from 121.90. The euro fell 0.1 per cent to 157.95 yen, off previous day's record peak at 159.

Sterling slipped to one-month lows against the dollar and euro after data showing a steep decline in British inflation cooled expectations for a near-term interest rate hike. The inflation rate slowed to 2.7 per cent last month from 3.0 per cent in December, posting its biggest drop in the annual rate in four years. The pound had fallen to the one-month low of $1.9403, shaving off nearly a full US cent after the data, before coming back a little to $1.9431

On February 14, the dollar dropped to six-week lows against the euro after Federal Reserve Chairman said inflation pressures were starting to ease, boosting chances of a US interest rate cut later this year. The euro broke solidly above $1.31 for the first time since early January to $1.3152. The euro was last at $1.3128, up 0.7 per cent. The dollar was down 0.3 per cent at 120.74 yen, near a 120.61 session trough, according to Reuters data, and weakened against other major currencies.

Sterling hit a one-week high against the dollar and recovered from a one-month low versus the euro after the Bank of England signalled that rates would have to rise once more to get inflation under control. Its gains against the dollar were accentuated in London trade after Federal Reserve Chairman said that signs of inflation pressures in the United States are starting to ease. Sterling was up 0.8 percent on the day at $1.9632, recovering from a one-month low of $1.9400 hit on February 13, after softer than expected British inflation data.

On February 15, the dollar tumbled to a one-month low against the yen, extending losses after data showed foreign investors were net sellers of US securities for the first time in nearly two years in December. The greenback logged its biggest daily fall against the yen in around 10 months as the yen rallied across the board following data that showed Japan's economy grew at an unexpectedly brisk pace in the fourth quarter.

The greenback also edged lower against the euro but recovered some ground after Federal Reserve Chairman told Congress that the economy may be stronger than some believe. In New York, the dollar had dropped 1.25 per cent to 119.20 yen, bringing it three yen below a four-year peak hit late last month.

The yen surged broadly after a report showed Japan's economy grew at a 4.8 per cent annualised pace in the fourth quarter, strengthening expectations that the Bank of Japan may raise interest rates next week from 0.25 per cent.

The euro, which hit a six-week high at $1.3173 after US capital flows data, eased back to around $1.3140 by late New York trade, up slightly on the day. Sterling lost more than a full US cent and hit a one-month low against the euro after surprisingly weak UK retail sales data injected doubt into expectations of future interest rate hikes. The pound had fallen to $1.9547, down 0.3 percent on the day, from pre-data levels around $1.9660 and an earlier one-week high. It recovered to $1.9565

At the close of the week on February 16, the dollar hovered near a one-month low against the yen after tumbling the previous session on surprisingly robust Japanese growth figures and a string of soft US economic indicators. The dollar extended its losses after data showed the first monthly net outflow from US capital markets in nearly two years in December.