January 28, 2008	Monday	Muharram 18, 1429

In the local currency market, the rupee showed mixed sentiments against the American and European currencies this week.

However, rising trade and payment deficit, uncertain political situation, rising fear of recession in the US economy and mounting world oil prices are exerting downward pressure on the rupee. In the past one month, the rupee has lost around 140 paisa against the dollar and about Rs4.93 against the European single common currency. The weakening trend in the rupee/dollar parity persisted in the local currency market on the opening day of the week in review.

The rupee commenced the week on a dismal note in the inter bank market on January 21, due to short dollar supplies mainly attributable to the closure of US market on account of Martin Day holiday and the firming up of dollar against major currencies in the European and Asian markets. As a result, the rupee suffered six paisa fall over the previous week close of Rs62.20 and Rs62.22, changing hands at Rs62.26 and Rs62.28 against the American currency.

Dollar supplies were short on the second day of trading. As a result the rupee posted sharp losses in single day trading, as it shed 22 paisa and traded at Rs62.48 and Rs62.50 on January 22 under demand pressure. On the following day, however, the rupee managed to rebound despite higher dollar demand on January 23, changing hands at Rs62.43 and Rs62.45, after recovering five paisa versus the dollar.

On the fourth trading day of the week, the rupee/dollar parity once again assumed downtrend as importers continued dollar buying, but the rupee resisted sharp decline, shedding two paisa on the buying counter and another three paisa on selling counter to trade against the dollar at Rs62.45 and Rs62.48 on January 24.

The rupee retained its overnight levels against dollar on the fifth trading day after a broad recovery in global stock markets from a frantic sell-off helped to stir risk demand, boosting high-yielding currencies particularly versus yen, which in turn pushed the low-yielding Japanese currency down against dollar in the world market. In the inter bank market, the rupee lost 25 paisa against the American currency during the week in review.

In the open market, the rupee extended its previous week weakness against the dollar, losing ten paisa on the week’s opening day. It traded at Rs62.70 and Rs62.85 on January 21, after closing last week at Rs62.60 and Rs62.75. The rupee continued to slide on the second day and lost five paisa more on the buying counter but remained unchanged on the selling counter, trading at Rs62.75 and Rs62.85 on January 22.The rupee further lost ten paisa, closing the third trading day near Rs63 barrier. The dollar was seen changing hands at Rs62.85 and Rs62.95 during the day.

On the fourth trading day, however, the rupee managed to recover ten paisa against the dollar, which traded at Rs62.70 and Rs62.85. On January 25, the rupee managed to retain its firmness versus the dollar gaining five paisa on the buying counter and ten paisa on the selling counter to trade at Rs62.65 and Rs62.75 at close. During the week in review, the rupee in the open market, however, showed a recovery of ten paisa against the dollar on cumulative basis.

Versus the European single common currency, the rupee commenced the week on a positive note as it managed to recover 60 paisa to change hands at Rs90.50 and Rs 90.60 on January 21, compared to previous week close of Rs91.10 and Rs91.20. The rupee held its overnight firmness on the second trading day, when it managed to gain another 40 paisa to trade at Rs90.10 and 90.20 against the euro on January 22. However, on January 23, it failed to hold its firmness versus the euro, shedding 80 paisa to trade at Rs90.90 and Rs91.00.

On January 24, downtrend in rupee/euro value persisted for the second day in a row, further shedding 40 paisa to trade at Rs91.30 and Rs91.40. On January 25, The rupee posted a steep decline versus euro, losing 73 paisa more to trade at Rs92.03 and Rs92.14, a third straight day of decline in the rupee/euro value. This brings cumulative fall in the rupee value this week to 90 paisa against the European single common currency.

In the international financial market, European markets recovered sharply after wide losses starting on January 21, when US markets were closed for the Martin Luther King holiday. Markets world-wide were gripped by waves of selling which hit Asian equities particularly hard. The dollar rose broadly and hit a one-month high against the euro as investors fretted whether major economies would be able to decouple from the slowing US economy.

In Tokyo, the euro fell as low as $1.4533, its lowest since late December. It stood at $1.4541 as for a decline of 0.5 per cent on the day. The dollar held steady against the yen, and stood at 106.76 yen little changed from late US trading last weekend. Sterling slid to its lowest in nearly a year against the dollar in London. The pound was down 0.35 percent versus the dollar, to around $1.9470, having fallen to $1.9461, its lowest level since March. It fell by over one per cent versus the yen, to as low as 205.72, its lowest since May 2006.

On January22, the dollar tumbled against major currencies except the yen after the Federal Reserve unexpectedly slashed its benchmark overnight lending rate in an attempt to allay market fears of a US recession. The Fed’s emergency move to cut rates by three quarters of a percentage point was precipitated by a global equities rout. In New York late trade, the euro was up 1.2 per cent on the day at $1.4613 after briefly racing to $1.4643. The euro has rebounded from a one-month low against the dollar of around $1.4366, according to Reuters data.

Against the Swiss franc, the dollar was down 1.1 per cent at 1.0963 francs, while the pound rose 1 percent to $1.9615. The dollar, however, fared better against the yen, with analysts citing repatriation flows on the back of collapsing equity prices as well as an improvement in risk appetite after the Fed’s rate cut. It traded up 0.6 per cent at 106.62 yen, after earlier touching its lowest in more than two and a half years vs the yen.

On January 23, the yen reversed earlier gains and fell in late trading as US stocks rallied at the close, boosting demand for riskier assets. Earlier, declining stocks in the United States and Europe encouraged investors to reduce exposure to riskier assets despite the Federal Reserve’s hefty interest rate cut a day earlier. The Fed’s 75-basis-point reduction in its benchmark overnight lending rate, to 3.5 per cent, did little to calm investors’ fears of a US recession and its impact on the global economy.

In earlier trading, the dollar dove to 104.98 yen, its lowest since May 2005. It erased those losses and was last traded 0.1 per cent higher at 106.60 yen. The euro climbed as much as 0.4 per cent to the day’s high around $1.4685 in early Tokyo trade, extending its rally after surging 1.3 per cent, its biggest one-day percentage gain since early 2006. But it later relinquished its gains to stand at $1.4637, little changed from late US trading on January 22. The dollar slipped 0.5 per cent against the Swiss franc to 1.0891. The pound was down 0.6 percent versus the dollar at $1.9490.

On January 24, the dollar slid against the euro as tough inflation comments by a European Central Bank official and strong German business confidence data dashed hopes for a near-term interest rate cut in the euro zone. In New York, the euro rose 0.8 per cent and traded at $1.4753, on track for a third day of gains. The dollar was up 0.1 per cent at 106.90 yen, after earlier slipping to 105.95 yen. Against the Swiss franc, the dollar fell 0.4 per cent to 1.0863. Sterling had gained 0.6 per cent against the dollar to $1.9680, back at levels seen last week close.

At the close of the week on January 25, the dollar edged up against the yen as a broad recovery in global stock markets from a frantic sell-off encouraged risk taking, putting the Japanese currency under broad selling pressure. The dollar rose as high as around 107.30 yen pulling away from a 2-1/2-year low of 104.95 yen hit on January 23 in Tokyo. The euro edged up 0.2 per cent to 158.11 yen. The euro was steady around $1.4760 bolstered after ECB policymakers rejected talk of lower interest rates and restated intent to control inflation risks. The pound had touched $1.9847 in London, up 0.4 per cent versus the dollar, its highest in nearly two weeks.