May 14, 2007	Monday	Rabi-us-Sani 26, 1428

The rupee displayed a firm trend against the dollar and euro in the local currency market this week. It moved both ways and traded in a narrow range throughout the week on comfortable dollar supply position in the market.

In the inter bank market, the rupee commenced the week on a negative note as it shed four paisa over its previous weekend's levels of Rs60.54 and Rs60.56 and traded at Rs60.58 and Rs60.60 against the dollar on May 7. Supply of dollar was tight, amid rising demand, which exerted downward pressure on the local currency.

The rupee held its last levels as dollars' supply eased on May 8, when firm trend prevailed in the market. The rupee almost maintained its overnight levels against dollar at Rs60.59 and Rs60.60. On May 9, the rupee dipped slightly against the dollar changing hands at Rs60.60 and Rs60.61 after shedding one paisa from its overnight levels.

On May 10, the rupee managed to gain five paisa for buying and another three paisa for selling to trade at Rs60.55 and it at Rs60.57. Comfortable supply of dollar improved the rupee's value further on May 11. The rupee recovered four paisa versus dollar and traded at Rs60.51 and Rs60.53. During the week in review, the rupee lost seven paisa against the dollar in the inter bank market.

In the open market, the rupee opened the week on a weak note, shedding four paisa against the dollar for buying and five paisa for selling, changing hands at 60.65 at 60.75 amid strong demand for the US currency on May 7. It had closed last week at Rs60.60 and Rs60.70 against the dollar. On May 8, however, the rupee traded unchanged at Rs60.65 and Rs60.75 amid strong demand for dollar.

The local currency overnight firmness prevailed versus the dollar on May 9. The rupee/dollar parity traded unchanged at Rs60.65 and Rs60.75 for the second day in a row. The rupee firmness against the dollar persisted for the third day on May 10, as the parity moved stable at Rs60.65 and Rs60.75. On May 11, the rupee extended its gains versus the American currency and recovered five paisa to change hands at Rs60.60 and Rs60.70 versus the dollar. Over the past week, the rupee in the open market did not show any change against the dolar this week.

Versus the European single common currency, the rupee commenced trading on a weak note on May 7, when the rupee lost three paisa over its previous weekend's levels Rs82.23 and Rs82.33 and traded at Rs82.26 and Rs82.36, as the euro managed to recover its gains versus the dollar in the global markets. The rupee continued its slide against the euro on May 8, and shed two paisa to trade at Rs82.28 and Rs82.38 during the day.

On May 9, the rupee managed to recover sharply and gained 43 paisa, changing hands at Rs81.85 and Rs.81.95. It was almost unchanged at Rs81.84 and Rs81.94 on May 10. The rupee maintained a firm trend against euro on May 11. It further gained 29 paisa and traded at Rs81.55 and Rs81.65 against the European single common currency. This week, the rupee managed to recover 68 paisa against the euro in the open market.

On the international front, the dollar fell ahead of three central bank meetings that may underscore market expectations for US interest rates to fall this year as rates in other major economies climb. The euro was last trading at $1.3601, up 0.1 per cent from last week close, and near a lifetime high above $1.3680.

The dollar was down 0.1 per cent at 120.07 yen on May 7, while sterling edged up 0.1 per cent to $1.9926.

It was the second straight day of declines for the dollar against the euro, yen and pound. The Canadian dollar was the biggest mover on the day, rising to an 11-month high against its US counterpart after Alcoa Inc announced a $27 billion hostile bid for Canadian rival Alcan. Dollar/Canadian dollar last changed hands at C$1.1020.

On May 8, the dollar climbed against the euro in technically driven trade but fell for a third day against the yen as investors await hints from the Federal Reserve that it may lower US interest rates by year-end. Traders also sold the euro against the yen, knocking it from near last week's record high of 163.60 yen.

The euro's slide against the dollar was mostly a technical affair, with traders taking profits after the currency fell in five of the seven sessions since touching a record high above $1.3680.

The downward pressure triggered some automatic orders to sell euros that pushed euro/dollar down to $1.3516, a three-week low, before it edged back to $1.3546. But analysts said the dollar still looks vulnerable in the weeks ahead, especially given recent data suggesting the US economy is slowing while euro-zone growth steams ahead. The dollar slipped 0.1 per cent to 119.96 yen, while the euro was off 0.5 percent at 162.50 yen.

Traders said euro weakness was also partly tied to comments from German Finance Minister Peer Steinbrueck, who said the yen was on a sustainable recovery course. Some European officials have complained about yen weakness for fear it will undermine European exports and production. A report showing German industrial production unexpectedly fell in March and was revised lower in February also weighed on the euro.

In other trading, the Australian dollar rose 0.4 per cent to $0.8284 as strong consumer spending data kept upward pressure on inflation and interest rates. Sterling strengthened against a broadly weaker euro and was flat against the dollar ahead of an expected interest rate hike from the Bank of England later this week and rate decisions from the Federal Reserve and European Central Bank. The pound was flat against the dollar at $1.9935, around two cents below the 26-year high of $2.0132 hit last month.

On May 9, the dollar gained against the euro and yen after the Federal Reserve held benchmark US interest rates steady and said its main worry is that inflation will fail to moderate. The widely expected decision by the US central bank's Federal Open Market Committee keeps the overnight federal funds rate target at the level it has held since June 2006 of 5.25 per cent following 17 straight quarter-point increases.

The euro was down 0.1 per cent at $1.3525 after the decision while dollar/yen gained 0.1 per cent at 120.09 yen. Sterling hit a one-week high against a basket of currencies, a day before the Bank of England is widely expected to raise UK interest rates, taking them to the highest level among the G7 countries. Sterling was up 0.2 percent at $1.9934. A spate of soft US economic data has helped push the dollar to record lows against the euro and 26-year lows against sterling.

On May 10, the dollar advanced to one-month highs against the euro as investors trimmed bearish bets on the greenback after key central bank meetings this week. Comments by US Treasury Secretary that a strong dollar was in the interest of the United States, also helped the greenback's rally gather momentum. Sentiment on the dollar had been negative for many weeks on concerns over the US economy and expectations for higher interest rates in Europe and the UK, pushing bearish positions on the currency to stretched levels.

The euro slipped as low as $1.3466 but last changed hands at $1.3484, down about 0.3 per cent on the day. Against the yen, the dollar rose as high as 120.54 yen, the highest since late February, when a surge of risk aversion boosted the yen before surrendering gains. It last traded down 0.1 per cent at 119.90 yen. The yen strength against other currencies was helping the yen to recover against the dollar.

The dollar gained strength after the Fed said in its policy meeting statement that inflation remained the main concern despite recent signs of economic weakness. That prompted some investors to pare back bets on the Fed cutting rates this year. Sterling hit a four-week low against a broadly firm dollar and fell to $1.9792, down 0.8 per cent on the day.

At the close of the week on May 11, the yen steadied after making broad gains in the previous session, as investors trimmed short positions on caution that falls in Asian stocks following a pullback in US equity markets could prompt more risk-cutting. The dollar was steady at 119.89 yen as, down from a 2-1/2-month high of 120.54 yen struck on May 10. The dollar fell to intraday lows near 119.70 yen earlier in the session but later trimmed losses, partly on buying by Japanese investment trusts.

Against the dollar, the franc was largely flat at 1.2207 francs per dollar. Traders said falls in the euro and sterling against the dollar after key central bank meetings this week also prompted investors to sell those currencies against the yen. Sterling fell to a one-month low of $1.9762, but recovered losses after weaker than expected US retail sales data to stand at $1. The euro was up slightly at 68.18 pence.