Higher demand for American currency amid tight supply of dollar kept the rupee under pressure in the local market this week. Political situation after the Supreme Court judgment this week also pushed the share prices sharply lower and causing upsurge in dollar's demand in the local market.

The supply of dollars in the inter bank market was tight on the opening day of the week due to closure of foreign markets. Tight dollar supplies pushed the rupee down against the US currency on August 20, when the rupee was seen changing hands versus the dollar at Rs60.51 and at Rs60.53 after shedding three paisa on buying counter and four paisa on selling counter against previous week close of Rs60.48 and Rs60.49.

On August 21, crisis in the Karachi stock market exerted downward pressure on the rupee. As a result, the rupee lost three paisa to settle against the dollar at Rs60.54 and Rs60.56 on rising demand by importers to meet their payment requirements and investors' demand after the slide in shares market. Falling trend continued in the interbank market on August 22, when the rupee shed six paisa on buying counter and another five paisa on selling counter to trade versus the dollar at Rs60.60 and Rs60.61 due to rising demand for the US currency.

On August 23, the inter bank rupee/dollar parity was stable. Dollar supply improved but demand for dollar was also high. The parity, however, managed to hold its overnight levels unchanged at Rs60.60 and Rs60.61. On August 24, the rupee continued its slid in relation to dollar, losing seven paisa to trade at Rs60.67 and Rs60.69. During the week in review, the rupee in the inter bank market lost 19 paisa against the dollar

In open market the rupee gained two paisa on the week's opening day, trading at Rs60.75 and Rs60.80 against last weekend's Rs60.77 and Rs60.82. On the second day of the week in review, the rupee drifted lower in relation to the greenback, losing two paisa for buying and five paisa for selling to trade at Rs60.77 and Rs60.82 on August 21. On August 22, the rates in the open market were not available due to market closure caused by heavy rains in Karachi.

However, the rupee continued its downward movement as demand for dollar persisted on the fourth consecutive day. As a result the rupee lost ten paisa on buying counter and 12 paisa on selling counter, changing hands at Rs60.85 and Rs60.95 on August 23. On August 24, the rupee did not show any change on the buying counter but gained on the selling counter, changing hands at Rs60.85 and Rs60.92. As a result, it suffered a cumulative loss of eight paisa for buying and ten paisa for selling against the dollar in the open market this week.

Versus the European single common currency, the rupee continued to extend its weakness further shedding 17 paisa on the opening day of the week. As a result of this decline euro was trading at Rs81.72 and Rs81.82 on August 20, compared to previous week's Rs.81.55 and Rs81.65. The rupee, however, managed to stage a turnaround versus the euro on August 21, as it picked up 12 paisa against euro, which traded at Rs81.60 and Rs81.70.

Trading remained suspended on August 22, due to heavy monsoon rains. However, when it resumed on August 23, the rupee also slid steeply versus euro, shedding 43 paisa to trade at Rs82.03 and Rs82.15. Dollar's strong position in the global markets pushed the rupee down in the local market. The rupee, however, was lower by 12 paisa in relation to the euro on August 24, trading at Rs82.15 and Rs82.25. This week, the rupee posted a sharp fall of 60 paisa against the European single common currency.

On the international front, the yen fell broadly on the week's opening day as stocks staged a rally and investors cautiously waded back into risky trades after last week's surprise cut in the Federal Reserve's discount lending rate. The move reversed some of last week's yen rally, sparked by mounting losses on US mortgage debt that dulled investors' risk appetite and prompted an unwind in carry trades that involved borrowing yen cheaply to buy higher-yielding assets.

The dollar was up 0.5 per cent at 114.93 yen on August 20, off a session low of 113.69 yen. The euro was also up 0.5 per cent at 154.92 yen and up 0.1 percent at $1.3483. The Australian dollar, a favoured high-yielding target of carry traders, put in its best day in seven weeks, rising more than 1 percent to $0.8093. Sterling hit a session low after the Bank of England said it had lent 314 million pounds via its standing facility the previous session, but recovered some ground. The pound was down a third of a per cent on the day versus the dollar at $1.9807.

On August 21, the yen gained broadly as jitters about global credit conditions led investors to shed risky assets funded by borrowing in the Japanese currency. Analysts said investors remained on edge about disorder in credit markets, brought on by losses in bonds backed by risky US mortgage debt. That has prompted investors to unwind carry trades that involve borrowing cheap yen to buy higher-yielding assets and to snap up US Treasury debt, providing a safe-haven bid for the dollar against most major currencies save for the yen.

In New York, the dollar was down 0.4 percent at 114.40 yen, while the euro changed hands at 154.05 yen, down 0.5 percent on the day. The high-yielding Australian dollar, a proxy for carry trade appetite, was the biggest loser against the yen, falling more than 1 percent from a day earlier. The dollar fared better against sterling, though, rising 0.3 percent to $1.9820 per pound, while the euro fell 0.1 percent to $1.3463.

On August 22, firmer stock markets eased anxiety about tough lending conditions and left investors trimming recent bets on the Japanese currency. In the United States, share prices rose, building on the week's steadying trend after being pounded in the prior few weeks. Meanwhile, US corporate spreads narrowed, reflecting improved sentiment on credit markets - ground zero in the recent surge in volatility. This has renewed the appeal of higher-yielding currencies such as the Australian and New Zealand dollars, each of which gained more than one per cent against the yen.

The euro had its best day against the yen in nearly four years and chalked up its largest daily rise against the dollar since early July as markets revived their outlook for higher euro-zone interest rates after the European Central Bank said there had been no change to its monetary policy stance since its August 2 meeting. That was when ECB President hinted at a possible September rate hike by saying "strong vigilance" was needed to stem inflation risks. Expectations that the Bank of Japan would hold interest rates at 0.5 per cent also weighed on the yen, analysts said.

The dollar rose 0.6 percent to 115.11 yen. Last week, it hit a 14-month low around 111.60 yen. The euro rose 0.6 percent to $1.3540, its biggest one-day jump since gaining nearly 0.9 percent on July 10. Sterling was up against the dollar as high yielding currencies made a comeback, benefiting from calmer markets after suffering heavy losses since the start of the month. It was up a third of a percent against the dollar to $1.9881.

On August 23, the yen fell for the second straight day as easing global credit concerns sparked a tentative rebound in trades financed by borrowing at low Japanese interest rates. But early gains in US stock markets fizzled after the CEO of top US mortgage lender Countrywide Financial said the struggling housing market could drag the US economy into recession. That renewed fears of further market turmoil and helped the yen recover some earlier losses against the dollar and euro.

In late New York trade, the dollar was up about 0.6 percent at 116.03 yen, though well off its session peak above 117 yen. Sterling rose 0.6 percent back above $2.00 for the first time in more than a week, exiting North American trade at $2.0050, while the euro rose 0.1 percent to $1.3560. The European Central injected 40 billion euros of funds via a three-month money market operation, further restoring confidence to the market.

At the close of the week on August 24, the yen edged up against major currencies after a slide in Asian stocks chilled risk demand as it highlighted the possibility that problems in the US housing and credit markets may sting the broader economy. Trading was subdued as few investors were willing to take on fresh positions a week after liquidity in credit markets shriveled up due to ongoing turmoil in the US sub prime mortgage market, triggering a frantic sell-off in global markets.

The dollar slipped 0.2 per cent against the yen to 116.10 yen after rebounding as much as five per cent this week from a 14-month low of 111.60 yen struck a week ago. The euro was little changed at $1.3560. High-yielding currencies like the New Zealand dollar stayed under selling pressure, sliding 0.25 per cent against the dollar to $0.7125. The pound was up 0.2 per cent versus the dollar at $2.0097, after hitting its highest level in 10 days at $2.0116.