February 26, 2007	Monday	Safar 8, 1428

THIS week, the rupee got strength in the currency market as the supply of the dollars improved after opening of international markets. Positive fundamentals on the economic front also supported the rupee to gain its lost ground versus the US currency.

Market analysts attributed the firmness in the rupee, despite high dollar demand to sufficient flows of dollars and encouraging prospects in the country as the several development deals are in pipeline.nsrsid5245756

The week commenced on negative note. Closure of main currency markets in the world, amid high corporate demand to meet payment requirements exerted sharp downward pressure on the rupee in the interbank market on the opening day of the week. As a result, the local currency lost 13 paisa against the dollar and traded at Rs60.71 and Rs60.73 on February 19, against previous week close of Rs60.53 and Rs60.58.nsrsid5245756

The dollar firmness over the local currency persisted as the rupee extended its overnight losses on tight supply of US currency on the second day in a row. The rupee shed seven paisa on the buying and six paisa on the selling counters, changing hands at Rs60.78 and Rs60.79 on February 20. However, as a result of the improved dollar supply on the third trading day, the rupee made a firm recovery against the greenback. It gained eight paisa over the dollar and traded at Rs60.70 and Rs60.71 on February 21.

The rupee continued its upward rising trend versus the dollar for the second successive day, picking up four paisa on February 22, when the dollar traded at Rs60.66 and Rs60.67. Firmness prevailed in the on February 23, as the rupee did not show major change against the dollar, which traded at Rs60.65 and Rs60.67. The rupee was firm due to easy supply of dollars. During the week, the rupee in the inter bank market shed 12 paisa on the buying counter and nine poise on the selling counter.

In the open market, the rupee gained two paisa and traded at Rs60.68 and Rs60.78 versus dollar on February 19, against previous weekend’s Rs60.70 and Rs60.80. On February 20, the rupee maintained its overnight gains against the dollar as it picked up eight paisa more on the second day, changing hands at Rs60.60 and Rs60.70, amid low demand and comfortable dollar supply.

On February 21, the rupee maintained its overnight level in relation to the dollar and traded at Rs60.60 and Rs60.70 on the second consecutive day. On February 22, however, the rupee shed five paisa, trading at Rs60.65 and Rs60.75 against the dollar. The rupee extended its weakness on the fifth day of trading and shed five paisa against the US currency, changing hands at Rs60.70 and Rs60.80 on February 23, which was the same as that of the previous weekend levels.

Versus the European single common currency, the rupee continued its weakness on the opening day. It lost 10paisa and traded at Rs79.35 and Rs79.45 on February 19, after closing last week at Rs79.26 and Rs79.36nsrsid5245756. The weakened further against the euro and shed another 10 paisa to trade at Rs79.45 and Rs.7955 on February 20.

On February 21, however, the rupee reversed its downtrend versus the euro and picked up 15 paisa trading at Rs79.30 and Rs79.40. The rupee maintaining its firmness versus the euro picked up another 10 paisa and traded at Rs79.20 and Rs79.30 on February 22. The rupee remained unchanged at its overnight level of Rs79.20 and Rs79.30 on February 23. This week, the rupee managed to gain six paisa against the euro.

On the international front, trade was subdued and investors remained hesitant to bet aggressively as markets in China, Hong Kong and Singapore were closed for Lunar New Year holidays, while US financial markets were also closed to mark the Presidents Day holiday on February 19. In Tokyo, the dollar hit a six-week low against the Swiss franc on the opening day after weak US housing data late last week further fuelled expectations that the Federal Reserve may start cutting interest rates later this year.

The dollar also stayed near a six-week low against the euro and a five-week trough versus the yen after a US government report showed that the pace of home construction fell 14.3 per cent in January, the sharpest drop since October.

The market's main focus was whether the Bank of Japan would raise the overnight call rate to 0.5 per cent from the current 0.25 per cent at its two-day policy meeting early this week, with market opinion split on whether a move is in the offing.

The yen rallied last week after strong GDP growth data in October-December boosted expectations for a February rate hike. The dollar barely budged at 119.45 yen from US trading last week, when the US currency hit a five-week low of 118.98 yen. The dollar fell two per cent against the yen last week, its worst weekly slide in nine months, on an array of weak data and comments from Fed Chairman that inflation was starting to cool, boosting speculation that the US central bank will have to trim rates from 5.25 per cent later this year.

The dollar was at 1.2342 Swiss francs after hitting a six-week low around 1.2315.

The euro was a touch firmer at $1.3149 within striking distance of a six-week high on EBS of $1.3173 hit on February 16. The single currency rose 0.2 per cent versus the yen to 157.10 yen. Sterling hit a six-week low versus the euro after the Bank of England said some depreciation of the real effective exchange rate would probably be necessary. It had fallen around a cent to a six-day low of $1.9433 after the comments, later stabilising slightly to $1.9454 - down a quarter percent on the day.

On February 20, the yen fell broadly for a third straight session as investors reckoned that any interest rate increase by the Bank of Japan would be unlikely to curb relentless selling of the Japanese currency. Investors are split on whether the BoJ will raise Japanese borrowing costs by a quarter percentage point to 0.5 percent at the end of a two-day policy meeting. But many said that even if the central bank were to raise rates, it would likely do little to overturn the popularity of carry trades, in which investors have been dumping the yen in favour of vastly higher-yielding currencies like the New Zealand dollar.

The dollar fell as low as 118.98 yen last week, its weakest in more than a month against the Japanese currency. The dollar was trading at 120.00 yen, up 0.4 percent in the afternoon session in New York. With US markets returning from a three-day weekend and no major new US data to provide direction, the dollar was little moved against most major currencies. It momentarily slipped to a six-week low against the euro after BBC News reported that Washington had contingency plans for air strikes on Iran.

In New York trade the dollar recovered, and the euro was trading down 0.1 percent at $1.3135, well off a peak of 1.3190, the highest since early January. The dollar rose 0.25 percent to 1.2360 Swiss francs. Sterling ticked up from the previous day's six-week low against a basket of currencies, supported by robust data from the housing market and as people adjusted positions ahead of Bank of England minutes. It was up 0.15 per cent at $1.9542.

On February 21, the yen fell against the dollar and euro for a fourth straight day after the Bank of Japan raised benchmark interest rates for the first time since July but said further increases would be gradual. That left investors still willing to fund carry trades using yen, borrowing in Japan, where rates are low, and then selling the yen to buy higher-yielding currencies. That strategy will remain appealing as long as Japanese monetary policy remains predictable and financial market volatility stays low, strategists say.

A key measure of US inflation that showed prices rose at a faster pace than expected in January also supported the dollar as it fed the notion that US interest rates will not fall any time soon. The dollar rose nearly 0.8 per cent against the yen to trade at 120.88 yen as the Japanese currency retraced almost all its gains of the past week. The euro traded at 158.84 yen, after climbing to a record of 159.05 yen in the New York session. Against the dollar, the euro was down marginally at $1.3137.

Sterling slipped against the dollar after minutes from the Bank of England's February policy meeting showed a 7-2 vote in favour of holding interest rates at 5.25 per cent, as expected. The pound had fallen more than half a cent from levels seen before the minutes, hitting a low of $1.9488, before trimming losses to stand at $1.9511 - down 0.2 per cent on the day.

On February 22, the dollar rose against the yen for a fifth successive session as a recent spate of economic data heightened expectations that benchmark US interest rates would hold steady for most of this year.