October 17, 2007	Wednesday	Shawwal 4, 1428

The rupee/dollar parity assumed an upward rising trend in the local currency market this week. Increased inflow of remittances from Pakistani workers abroad has released pressure on the rupee, which commenced the week on a soft tone in the interbank.

However, as the international financial markets were closed for weekly holiday, the local currency market experienced short supply of dollar on October 8, which forced the rupee to fall against the dollar on the first trading day of the week in the interbank market. The rupee lost three paisa to trade at Rs60.75 and Rs60.77, after closing last week at Rs60.72 and Rs60.74.

The rupee managed to reverse its overnight weakness in the inter bank market on the second trading day as it gained four paisa and traded at Rs60.71 and Rs60.73 against the dollar on October 9. The rupee extended its firmness over the dollar ahead of the long week-end as it inched up with a rise of one paisa on the third trading day, changing hands at Rs60.70 and Rs60.72 on October 10. On October 11, the rupee further expended its firmness gaining seven paisa against dollar, which was seen trading at Rs60.63 and Rs60.65 on the fourth trading day of the week in review.

In the open market, the rupee moved up against the dollar on October 8, and traded at Rs60.58 and Rs60.65 after gaining two paisa against dollar on the buying counter. It, however, did not show any change on the selling counter. It had closed last week at Rs60.60 and Rs60.65. On October 9, the rupee continued its upward trend against the dollar. It further recovered ten paisa on buying counter and eight paisa on selling counter, changing hands at Rs 60.48 and Rs 60.53 versus the US currency in soft trading.

On October 10, the rupee failed to hold ground and gave up its overnight firmness in relation to the US currency, losing seven paisa to trade at Rs60.55 and Rs60.60. It further extended its overnight losses against the dollar, as it lost five paisa more and traded at Rs60.60 and Rs60.65 on October 11. The currency market saw a dull trading day on October 12 as market players were in a holiday mood being lasst Friday of the Holy month of Ramadan. The local currency market will remain close from October 13 to October 16 on account of Eid-ul-Fitr.

Versus the European single common currency, the rupee retained its weekend trend against euro and picked up 15 paisa on the opening day of the week to trade at Rs85.05 and Rs85.15 against previous week close of Rs85.20 and Rs85.30. It further gained 65 paisa on the second trading day, changing hands versus the euro at Rs84.40 and Rs84.50. However, on the third trading day of the week, the rupee unable to maintain its firmness shed 30 paisa and traded at Rs84.70 and Rs84.80. The rupee further lost 45 paisa and traded at Rs 85.15 and Rs 85.25 on the fourth trading day.

In the international market, the dollar gained in quiet trade against most major currencies on the opening day of the week in review, as investors reassessed risk and bet that weekend’s sell-off on a US payrolls report was overdone. September job growth was the best since May and eased concern about an imminent US recession, but some dealers sold the dollar on concern the economy is not growing fast enough to prevent the Federal Reserve from cutting interest rates further.

The euro slipped 0.6 percent to $1.4043, off its record high of $1.4281 hit last week, and below its level of $1.4135 in New York, according to Reuters data, as the jobs data reduced chances that the Federal Reserve would cut interest rates this month.

The greenback also climbed to 117.38 yen, a gain of 0.4 percent from 116.96 yen and its highest level since a credit crisis sparked by losses on US mortgages roiled markets in mid-August. Analysts said traders had recovered their taste for carry trades that use cheaply borrowed yen to buy higher-yield currencies. The pound lost ground against a broadly stronger dollar, easing to $2.0380.

On October 9, the dollar declined against the euro after earlier hitting a two-week high, as traders stepped in to buy back the common currency at cheaper levels on expectations of further dollar weakness. That arrested a two-day dollar rally, sparked by a growing view that last week’s better-than-expected employment data would keep the Federal Reserve from cutting interest rates later this month. The euro slipped as low as $1.4016, well off a record high near $1.43 hit last week, before bouncing back.

The dollar briefly pared losses before falling again after the release of the minutes of the Federal Reserve’s September meeting, which indicated the central bank still has some inflation concerns. In New York, the euro was up 0.4 percent at $1.4108, near session highs. Earlier, it slipped to $1.4016, its lowest level since September 20. The dollar slipped 0.3 percent against the yen to 117.14. Sterling retreated from an earlier three-week high versus the euro and fell against the dollar, weighed down by mediocre UK trade data and prospects for UK interest rate cuts in coming months. The pound was down 0.4 percent at $2.0284.

On October 10, the dollar fell on speculation that the Federal Reserve may cut interest rates again this year to prevent a weak housing sector from damaging the broader economy. Comments by former Fed Chairman Alan Greenspan and by San Francisco Fed President heightened concerns about the economy, adding to fears that signs of slower growth would lead to lower rates. Policy makers slashed the benchmark lending rate by 50 basis points to 4.75 percent last month.

The dollar has been undermined by the prospect of further rate cuts, and the currency has been unable to capitalise on last week’s solid jobs report and rising bond yields, remaining near an all-time low against the euro. Although minutes from the Fed’s September meeting revealed little inclination by the central bank to cut again this month, December rate futures assess a roughly 76 percent chance of a 25 basis point rate cut that month.

In New York the euro traded at $1.4145, up 0.3 percent on the day. It hit a record high of $1.4281 last week. Sterling rose 0.2 per cent to $2.0416, boosted when Bank of England Governor said he would monitor inflation closely, raising the bar for a UK rate cut. Signs of continued growth outside the United States helped support some investor risk appetite. The Bank of Japan is expected to end a two-day policy meeting by keeping interest rates at 0.5 per cent. That also weighed on the yen, often borrowed cheaply to finance purchases of higher-yield assets.

The dollar was up 0.1 per cent at 117.25 yen, while the euro rose 0.4 per cent to 165.87 yen. Earlier, the yen climbed to a two-and-a-half-month high above 166 yen. The euro also got a boost from better-than-expected French and Italian production data, suggesting manufacturers have been able to adjust to a strong euro with minimal pain. Sterling gained against the dollar as expectations grew that the Bank of England may not cut interest rates in the near term given lingering inflationary pressures. The pound was up 0.2 per cent against the dollar at $2.0421.

On October 11, the dollar dipped against the euro, pulling further away from two-week peaks hit this week, with lingering expectations that the Federal Reserve may cut interest rates again this year hanging over the currency. The possibility of a US rate cut has left the dollar unable to capitalise convincingly on a solid US jobs report last week, remaining near an all-time low against the euro. The yen fell broadly after the Bank of Japan left the benchmark overnight call rate unchanged at 0.5 percent by a vote of 8-1, the same vote tally as the past three meetings.

The dollar edged up 0.1 per cent to 117.30 yen and near this week’s peak of 117.61 yen on EBS, which was the highest since mid-August. The euro rose 0.1 percent to $1.4160 having bounced back from a two-week low of around $1.4015 struck on October 9 and hovering near a record high of around $1.4280 hit earlier this month.

Sterling slipped to $2.0400 down from around $2.0425 in late US trading, after data showed that British house prices fell at their fastest pace in two years in the three months to September.