Political unrest after the imposition of emergency has negatively impacted economic activities in the country this week. There have been reports of decline in foreign investment.

As a result of outflows from the financial markets because of political uncertainty, demand for dollars has risen, which has forced the rupee to decline further against dollar and euro in the local currency market. The rupee weakened to a three-year low this week.

The week started on a negative note. In the interbank market, the rupee shed three paisa versus dollar on the opening day of the week, changing hands at Rs60.93 and Rs60.94 as against previous week close of Rs60.90 and 60.91. The decline in rupee value in relation to dollar was attributable to short supply of dollars during the day. On November 13, the rupee suffered a sharp decline of six paisa in relation to dollar which traded at 60.99 and 61.00.

On November 14, the rupee lost 19 paisa against dollar for buying at Rs61.18 and it also fell by 20 paisa for selling at Rs61.20, being three year low. However, on November 15, it resisted a sharp fall versus the dollar and shed one paisa to trade at Rs61.19 and Rs61.21. Political crisis together with strengthening of dollar demand to cover import payments exerted downward pressure on the local currency.

On November 16, however, the rupee managed to recover its losses to some extend and gained seven paisa to trade at Rs61.12 and Rs61.15 against the dollar after the State Bank of Pakistan reportedly injected around $80 million into interbank market. The rupee fell sharply touching its lows at Rs61.28 before SBP intervention. This week, the rupee in the inter bank market, lost 22 paisa against the dollar.

In the open market, the rupee weakness versus the dollar persisted on the opening day. The local currency in line with inter bank market trend posted three paisa decline on buying counter and another seven paisa fall on selling counter to trade at Rs60.95 and Rs61.05 on the first trading day of the week in review, against last weekend’s levels of Rs60.92 and Rs60.98. Declining trend continued in the open market on the second trading day as the rupee shed five paisa changing hands at Rs61.00 and Rs61.10 against dollar.

The rupee further extended its fall against the dollar on the third day of the week in review shedding five paisa as the demand for dollars was on the upside. The dollar was at Rs61.10 and Rs61.15 at close. On the fourth trading day of the week, the rupee posted fresh losses against dollar. It shed 12 paisa and traded at Rs61.22 and at Rs61.27 after hitting the three-year high.

As a result of higher demand for dollars, the rupee came under renewed demand pressure on the fifth trading day and lost further eight paisa to trade at Rs61.30 and Rs61.35 versus the American currency. During the week in review, the rupee in the open market lost 38 paisa against the dollar. The State Bank had to intervene through brokers to stop the rupee from falling further.

Versus the European single common currency, the rupee, somehow managed to gain 22 paisa against on the first trading day of the week in review, changing hands at Rs88.84 and Rs88.94 on November 12, after closing previous week at Rs88.95 and Rs89.05. The rupee on the following day managed to display strength over the euro as it further gained 34 paisa and traded at Rs88.50 and Rs88.60 on November 13.

On November 14, the rupee failed to hold its previous two days firmness as it lost 65 paisa against euro, changing hands at Rs89.15 and Rs89.25 on the third trading day. The rupee decline versus the euro continued for the second consecutive day. It suffered a loss of 20 paisa trading at Rs 89.35 and Rs 89.45 on November 15. On November 16, the rupee managed to recover from past two days losses and gained 10 paisa in relation to the euro, trading at Rs89.25 and Rs89.35 during the day. The rupee lost 30 paisa versus the European single common currency this week.

In the international financial market, the dollar gained on the opening day of the week, reversing some of its recent losses as nervousness about credit-related losses at US banks triggered a wave of risk reduction in light volume trading. Against the dollar, the euro slipped 0.9 per cent to $1.4537, retreating from a record high of $1.4752 hit last weekend.

The yen has been charging higher in the last week. It climbed to a 1-1/2-year high against the dollar. The dollar fell to an 18-month low of 109.13 yen, according to Reuters data, before recovering slightly to trade at 109.64, down about 1 percent on the day. The dollar last week suffered its biggest weekly decline against the yen since December 2005. Sterling fell versus the dollar. The pound was down 1.3 percent at $2.0622, a two-week low.

On November 13, the dollar fell against most major currencies, resuming a long-term decline after a respite the previous session as investors expected further signs of housing weakness and sluggish consumer spending that could hurt US economic growth. For the moment, the rapid ratcheting down of risk appeared to be over and the market continued to maintain bets against dollar strength, though they have shrunk since last week.

The euro edged up 0.5 per cent to $1.4601, lifted partly by a 1.8 per cent rise against the yen to 161.95 yen. The euro was within a few cents of last week’s record high of $1.4752. The dollar was up 1.3 per cent at 110.90 yen after falling as low as 109.10 yen a day earlier. The Australian dollar jumped 2.2 per cent against the greenback to $0.8895 after tumbling 3.9 per cent on November 12. The New Zealand dollar rose 1.8 percent to $0.7591.

The US dollar fell 1 percent to C$0.9643. The pound was up 0.9 percent on the day against the dollar at $2.0730, recovering from previous day’s two-week low. Sterling recouped some of the previous session’s sharp losses, strengthening broadly after unexpectedly high British inflation data pushed expectations of a possible Bank of England interest rate cut further into the future.

On November 14, the dollar slipped as worries about the struggling US housing sector and lingering credit problems weighed on sentiment, leaving the dollar’s long-term downtrend intact. Data showing US retail sales growth slowed slightly in October, in line with expectations, and flat producer prices sustained investors’ decisions to keep pushing the dollar toward record lows against the euro.

The euro rose 0.3 percent to $1.4643, within sight of record highs of $1.4752 reached last week. Against the Swiss franc, the dollar fell to the lowest level since April 1995, at 1.1178 francs before recovering to trade at 1.1243, still down 0.2 per cent on the day. The dollar was up 0.4 percent to 111.36 yen.

Sterling was steady at $2.0701, more than a cent below levels seen before the BoE report.

On November 15, the US dollar rose against the euro but slid against the yen as ongoing credit market concerns and weak stock markets led investors to pare back on short positions in the greenback. Uncertainty about losses from the US subprime mortgage crisis continued to pervade markets. Persistent concerns about the lending environment have caused some currency traders to trim bets against the dollar and reduce yen carry trades.

The dollar was down one per cent on the day against the Japanese currency at 110.31 yen, within sight of 18-month lows of 109.10 yen set this week. But the euro was down 0.3 per cent at $1.4616, more than a cent below a record high of $1.4752 set last week, according to Reuters data. Sterling fell to a 3-week low against the dollar, hit by an unexpected fall in retail sales. The pound fell 0.5 per cent to $2.0437.

At the close of the week on November 16, the yen rose, picking up from an early fall as a slide in Asian stocks kept investors cautious about holding on to risky carry trades given ongoing concerns about global credit problems. The low-yielding yen extended gains made on the previous day as sinking US stocks and concerns about the health of major financial institutions dented risk demand, and moved closer to an 18-month high hit against the dollar earlier in the week.

The dollar fell 0.3 per cent to around 110.00 yen, pulling away from an earlier high around 110.65 yen. The euro slipped a touch to $1.4610 staying on the back foot against the. The Australian dollar fell 0.1 per cent to $0.8850. Sterling hit a three-week low of $2.0407 before recovering to $2.0444, flat on the day, as speculation grows that a dimmer British economic outlook may prompt the Bank of England to cut rates twice next year.