September 03, 2007	Monday	Sha'aban 20, 1428

In the local currency market this week, the rupee moved both ways versus the American and European currencies. The market sentiments remained mixed for investors most of the week.

On the opening day of the week, high corporate demand for dollar pushed the rupee value down in the interbank market, shedding 14 paisa. This was a sharp fall in a single day trading over its previous weekend's level of Rs60.66 and Rs60.68. The dollar was quoted at Rs60.80 and Rs60.82 on August 27.

The rupee further extended its overnight weakness on August 28, when it shed two paisa more against the dollar, changing hands at Rs 60.82 and Rs 60.84. High demand for dollar persisted as both importers and investors were in the market to purchase US currency after stock market negatively reacted on prevailing political situation. On August 29, an upward trend was witnessed in the inter bank market, as the rupee managed to stage a modest recovery over the American dollar following the return of investors in the stock market. The rupee gained three paisa against the dollar and traded at Rs 60.79 and Rs 60.81 on the day.

The rupee further extended its overnight firmness over the dollar on August 30, gaining four paisa on the second consecutive day to trade at Rs 60.75 and Rs 60.77. Strong dollar supply on August 31 enabled the rupee to further extend its firmness in the inter bank market. The rupee picked up 11 paisa and traded at Rs 60.64 and Rs 60.66 versus the dollar. During the week in review, the rupee, however managed to recover only two paisa against the dollar amid fluctuations.

In the open market, the rupee commenced trading on a weak note as it shed five paisa on the buying counter and eight paisa on the selling counter, changing hands at Rs 60.90 and Rs 61.00 against dollar on August 27, against previous week close of Rs 60.85 and Rs 60.92. However, the rupee traded unchanged at its opening day level versus the dollar at Rs 60.90 and Rs 61.00 on the second day of trading.

On August 29, the rupee/dollar parity in the open market remained stable as the rupee did not show any change against dollar on the buying counter while it managed to gain five paisa on the selling counter to trade at Rs 60.90 and Rs 60.95 on the third day of trading. On August 30, however, the rupee failed to retain its firmness over the dollar in the open market, where it shed two paisa on the buying counter and three paisa on selling counter trading at Rs 60.92 and Rs 60.98.

On August 31, the rupee managed to recover from its overnight losses as it picked up two paisa for buying and three paisa for selling to close the week at Rs 60.90 and Rs 60.95. This week, the rupee in the open market recovered five paisa against the dollar on the buying counter and three paisa on selling counter on cumulative basis despite the fact that the local currency remained under pressure during the most part of the week.

Versus the European single common currency the rupee fell sharply on the first trading day of the week, losing 17 paisa to trade at Rs 82.85 and Rs 82.95 on August 27 after closing last week at Rs 82.73 and Rs 82.85. However, on the second trading day, the rupee recovered its overnight losses and gained 20 paisa in relation to euro, changing hands at Rs 82.63 and Rs 82.75 against the euro on August 28.

On August 29, the rupee managed to hold its overnight firmness against euro for the second consecutive day and further gained 18 paisa to trade at Rs 82.45 and Rs 82.55. But it failed to retain its firmness further and lost 45 paisa on August 30, changing hands at Rs 82.90 and Rs 83.00 against the euro. The rupee shed five paisa against euro on the fifth day of trading, changing hands at Rs 82.94 and Rs 83.05 on August 31. On cumulative basis, the rupee lost 21 paisa against the European single common currency in the week in review.

On the international front, the dollar gained against the euro on August 27, but slipped against the yen as investors attempted to minimise exposure to risky assets amid lingering fears of a global credit crisis. European Central Bank President added to weight on the euro after his recent comments on policy on August 2 proceeded a period of market volatility. But those comments proved little reassurance for dealers who had been betting another benchmark interest-rate hike by the ECB would likely boost the euro.

The euro traded 0.2 per cent lower at $1.3650, snapping a three-day advance against the dollar. The dollar was down around 0.2 percent at roughly 116.13 yen after last week recovering nearly half of its losses from a sharp fall that began in early August from just below 120 yen. The dollar's decline ended three straight days of gains against the Japanese currency. The UK stock, financial and commodity markets were closed on August 27 for a bank holiday.

On August 28, the yen rallied against the dollar and euro as investors, fearing tougher credit conditions will crimp global economic growth, bought the lower-yielding currency and sold riskier assets. The dollar extended its decline after the release of minutes from the August 7 Federal Reserve policy meeting showing the US central bank acknowledging a policy response may be necessary if financial market conditions worsen. The US dollar changed hands down 1.2 percent at 114.36 yen, but was still off its 14-month low around 111.60 yen set in mid-August.

The euro slipped 0.3 per cent to $1.3608 from the previous New York session. Against the Swiss franc, the dollar slipped 0.2 per cent to 1.2005 francs and earlier touched a two-week low of 1.1962 francs. The euro fell 0.5 percent to 1.6344 Swiss francs. The New Zealand dollar, which has the highest yield in the industrialised world, was down 2.3 percent to $0.6792. Against the dollar sterling was a touch softer at $2.0101.

On August 29, the yen suffered its biggest one-day percentage decline against the euro in more than three years and the dollar in more than two years on Wednesday, as investors took recovering US stock markets as a cue to slash short-term bets that the Japanese currency would strengthen. The yen had climbed sharply on August 28 in tandem with tumbling global stocks, as traders cut back carry trade bets on greater apprehension of the fallout from the US subprime mortgage meltdown.

However, on August 29, the dollar rose 1.7 percent to 116.12 yen, rebounding from a one-week low of 113.88 earlier in the session, as US stock indexes climbed after falling more than two per cent on the previous day. The euro climbed 2.2 per cent to 158.78 yen, and also rose 0.5 per cent against the dollar to $1.3671. The euro's gain on the yen so far on the day was the biggest since March 2004, at current prices according to Reuters data. Sterling climbed 0.8 per cent to $2.0174. Sterling strengthened as higher stock markets signalled a tentative return to risk appetite and a move back into the carry trade.

On August 30, the yen climbed recovering some of the previous day's decline, as investors maintained a long-term trend of reducing risky bets in response to troubled credit markets. High-yielding currencies such as the Australian dollar and British pound slipped as investors closed out carry trades due to fears that more restrictive lending standards due to the subprime mortgage mess could drag on global economic growth. Years of unusually low volatility have helped to propagate the currency carry trade, in which investors borrow in a low-yielding currency such as the yen to finance purchases of higher-yielding assets.

The euro moved down 0.4 per cent versus the dollar, to $1.3621. The dollar slipped 0.4 per cent to 115.78 yen after it posted its biggest daily percentage gain against the yen since January 2005, as US stocks surged on August 29. The Australian dollar dropped 1.3 per cent to 94.31 yen, while the pound fell 0.6 percent to 232.94 yen. While dealers and investors awaited the outcome of a slew of central bank meetings next week, including the European Central Bank, the Bank of Canada and the Reserve Bank of Australia, fallout from credit market woes surfaced. Sterling fell 0.3 percent versus the dollar to $2.0116.

At the close of the week on August 31, the dollar rose 0.2 per cent to 116.15 yen The US currency jumped as high as 116.38 yen at one point and kept its distance from a 14-month low of 111.60 yen struck two weeks ago. The euro rise against the yen helped the European single currency to climb 0.2 percent to $1.3660. The pound was steady against the dollar at $2.0124. High-yielding currencies were firmer against the yen on expectations that Japanese investment trusts would buy them as many new mutual funds focusing on overseas assets were due for launch during the day.