June 11, 2007	Monday	Jamadi-ul-Awwal 25, 1428

The rupee showed divergent trend against the US and EU currencies during the week. It moved both ways against the euro and dollar ahead of budget announcement.

The demand for dollar by the corporate sector is on the rise, but significant inflows of US currency restricted any sharp decline in rupee value this week in the local currency market.

Balanced demand and supply in the interbank market on the opening day of the week helped the rupee to retain its weekend levels against dollar, which traded unchanged at Rs60.74 and Rs60.75 on June 4. The rupee managed to hold ground, despite tight supply of dollar due to international market closure. The market was bullish on June 5, as the rupee posted fresh gain of 10 paisa against dollar, the biggest rise in a single day rally, changing hands at Rs60.64 and Rs60.65.

Bullish trend persisted on June 6, as the rupee extended its overnight gain by five paisa on easy supply of dollars to trade at Rs60.59 and Rs60.60 despite the higher demand of the US currency. On June 7, the rupee failed to maintain its previous three days firmness against dollar and shed one paisa to trade at Rs60.60 and Rs60.61. Rising demand for dollar pushed the rupee down slightly.

Increasing demand for dollars on June 8, arising mainly from importers fresh buying of dollars to meet their payment requirements, continued to exert pressure on the rupee. The rupee continued its overnight weakness against dollar and shed four paisa for buying and five paisa for selling, changing hands versus the dollar at Rs60.64 and Rs60.66. During the week in review, the rupee in the inter bank market recovered ten paisa on buying counter and eleven paisa on the selling counter.

In the open market, the rupee maintained its week-end levels against dollar on the week's opening day and traded unchanged at Rs60.85 and Rs60.92 on June 4. On June 5, the rupee moved both ways. It remained unchanged on the buying counter but shed three paisa on the selling counter changing hands at Rs60.85 and Rs60.95. However, on June 6, the rupee managed to gain firmly, recovering three paisa for buying and another four paisa for selling to trade at Rs60.82 and at Rs60.89 due to strong supply of dollars.

The rupee maintained its upward trend in respect of dollar, gaining seven paisa against the dollar on June 7, when it traded at Rs.60.75 and Rs.60.85. On the fifth trading day, it shed three paisa against the dollar for buying but was unchanged on the selling counter. It traded at Rs60.78 and Rs60.85 on June 8. This week, the rupee in the open market lost seven paisa versus the dollar on cumulative basis.

Versus the European single common currency, the rupee failed to retain its firmness and lost nine paisa, changing hands at Rs81.75 and Rs81.85 on the first day of trading in the week in review. The rupee had closed last week at Rs81.66 and Rs81.76. On the second day of the week in review, the rupee further lost 20 paisa and traded at Rs81.95 and Rs82.05 against the euro.

On June 6, the rupee extended its overnight weakness against the euro for the third consecutive day and shed 10 paisa more to trade at Rs82.05 and Rs82.15. However, the rupee managed to make a sharp recovery on the fourth day of trading when it appreciated against the euro, picking up 15 paisa on the buying counter and another 20 paisa on the selling counter to trade at Rs81.90 and Rs81.95 on June 7.

The rupee maintained its overnight ride over the euro on the fifth day of the week in review and gained 50 paisa to trade at Rs81.40 and Rs81.45 on June 8. Against the European single common currency, the rupee this week managed to recover 26 paisa on buying counter and 31 paisa on selling counter, amid wide fluctuations.

On the international front, the dollar weakened across the board on June 4, failing to sustain last week's gains as investors saw few prospects for a US rate hike, while the euro and other currencies linked to rising interest rates strengthened. The euro hit a record high against the low-yielding yen, while the Australian and New Zealand dollars also hit fresh multi-year peaks against the Japanese currency.

The euro was up 0.3 percent at $1.3488, nearly a cent above last weekend's eight-week low of $1.3391. The dollar was down 0.25 percent at 121.75 yen.

The euro earlier hit 164.36 yen, a lifetime high and last traded at 164.25.

Sterling was up 0.4 percent on the day at $1.9009, its highest in over three weeks. The pound had also risen as far as 242.46 yen - its highest since September 1992. The euro was steady at 67.77 pence.

On June 5, the dollar fell against the euro and yen, dipping below key technical levels after Federal Reserve Chairman said the ailing US housing sector may remain a drag on economic growth. The euro was 0.2 percent firmer at $1.3520. Earlier, it hit a three-week high at $1.3550. The dollar fell 0.3 per cent to 121.35 yen and 0.5 percent to 1.2180 Swiss francs. Sterling hit a 4-week high against the dollar, at $1.9968, moving back towards the psychologically key $2 level.

On June 6, the euro dropped against the yen and the dollar after the European Central Bank gave no clear indications about the outlook for interest rates beyond 2007, while global equity market weakness helped lift the Japanese currency. The yen was on track for the largest daily increase against the dollar in nearly two months, with investors exiting risky trades funded by borrowing cheaply in yen after seeing stock markets around the world weaken.

The ECB lifted its benchmark lending rate to 4 per cent, but the quarter-percentage-point hike had been well telegraphed and failed to boost the euro, which has been rising along with European interest rates over the last year.

The euro slipped below $1.3500 to a session low of $1.3486, down 0.2 per cent and nearly two cents from a record high above $1.3680 hit in April. It last traded around $1.3506.

Sterling edged higher against a broadly weaker euro after the European Central Bank's widely-anticipated interest rate hike, while it held steady against the dollar ahead of a UK rate decision. It was steady at $1.9931, after hitting a four-week high of $1.9968 on June 5. It was up 0.15 per cent at 67.73 pence per euro. The pound traded at 241.48 yen, having hit a 15-year high near 243 on June 5.

On June 7, the dollar rose against most major currencies as expectations for solid global economic growth pushed US government debt yields above 5 percent, providing a big potential draw for foreign investors. The third straight day of swooning global share prices also provided a boost to the dollar, analysts said, as US-based investors liquidated some foreign equity holdings. The spread of the benchmark 10-year Treasury yield over euro zone paper with the same maturity was the widest it has been in about two months, tilting more in the dollar's favour.

The euro was trading at $1.3428, 0.6 percent below its previous day's level, while the dollar was up 0.7 per cent at 1.2255 Swiss francs. The dollar index, which measures the greenback against a basket of major currencies, climbed nearly half a percent, its biggest daily gain since mid-May. The greenback surrendered earlier gains against the yen and last traded at 121.02. Some traders said stock losses were prompting investors to trim risk exposure by buying back the yen they had used to finance purchases of higher-yield, higher-risk assets.

Sterling fell against the dollar after the Bank of England left UK interest rates at 5.5 percent, prompting investors to trim long positions amassed beforehand on the basis a surprise hike was possible. The pound was down half a percent on the day at $1.9821. Sterling had hit a 4-week high of $1.9968 on June 5. The euro was up 0.3 percent at 67.94 pence.

At the close of the week on June 8, the yen fell broadly posting sharp losses against high-yielding currencies as rising global interest rates prompted Japanese investors to dump the yen and buy more foreign assets. The yen slipped even as a spike in bond yields pushed most stock markets in Asia down more than 1 percent, and traders were bracing for a yen recovery if investors cut back in risky positions like carry trades on a further drop in European shares.

The dollar was at $1.3423 from $1.3428 in late US trade, off a three-week high of $1.3555 hit earlier in the week. The dollar rose 0.2 percent against the yen to 121.18 yen from around 121.00 in late New York trade on June 7. Sterling fell to a two-month low versus a robust dollar. It was down half a percent at $1.9669, having earlier fallen to a two-month low of $1.9624.