June 09, 2008	Monday	Jamadi-us-Sani 04, 1429

The rupee was able to resist sharp losses in relation to dollar in both open and inter-bank markets this week as dollar inflows improved significantly. The tightening of monetary policy seems to have curb speculation and stabilised the currency.

However, the bank’s measures appear adequate for the short-term, because there are also concerns about outflows from the stock market which lost 13 per cent this year and is 22 per cent lower than a life-high set on April 21, 2008. Continued increase in oil prices in the international market has fuelled import payment bill which in turn have pushed dollar demand in the local currency market. This situation continues to exert downward pressure on the rupee.

The rupee in the inter bank market commenced the week on a dismal note as it gave up it weekend’s firmness versus dollar on June 2, posting losses to the tune of 60 paisa on the buying counter and another 50 paisa on the selling counter over previous weekend’s Rs66.30 and Rs66.50 to trade at Rs66.90 and Rs67.00, amid increasing demand from importers and tight dollar supplies. The rupee/dollar parity continued its downtrend on the second trading day with the rupee making fresh losses of 35 paisa against the dollar which was quoted at Rs67.25 and 67.35 on June 3. The rupee, however, resisted sharp decline versus the dollar due to smooth supply of the US currency during the day.

The rupee weakness over the dollar persisted on June 4, as demand for dollars continued to mount to meet heavy payments, particularly for oil imports. The international oil prices are currently hovering around $138 a barrel. As a result, mounting demand for dollars pushed the rupee further down, losing 15 paisa against the dollar to trade at Rs67.40 and Rs67.50. However, on June 5, the players in the inter bank market witnessed mixed sentiments with the rupee moving both ways. While the rupee managed to gain five paisa on the buying counter, it remain unchanged at its overnight levels on the selling counter, changing hands at Rs67.35 and Rs67.50.

On June 6, the rupee/dollar parity almost held its overnight trend, shedding another shed five paisa for buying but remaining unchanged for selling. The parity reverts to the June 4 position with the rupee changing hands at Rs67.40 and Rs67.50. The demand for dollars remained high as the importers were in the market to make payments to the foreign firms amid tight monetary position. During the week in review, the rupee in the inter bank market suffered losses on cumulative basis to the tune of Rs1.40 on the buying counter and Re 1 on the selling counter.

In the open market, the rupee opened the week on a positive note as it managed to gain 10 paisa against the dollar changing hands at Rs67.40 and Rs67.50 on June 2, after ending last week at Rs67.50 and Rs67.60. But on the following day, the rupee gave up its overnight firmness in relation to dollar and posted fresh losses of 40 paisa to trade at Rs67.80 and Rs67.90 on June 3. On June 4, the rupee further extended its overnight fall, falling 25 paisa against the US currency which was trading at Rs68.05 and Rs68.15.

The declining trend in the rupee/dollar parity persisted on the third consecutive day. The rupee posted fresh losses of 10 paisa changing hands in the open market at Rs67.90 and Rs68.00 against the American currency on June 5. On June 6, the rupee suffered a sharp decline of 25 paisa as the dollar continued its advancement and traded at Rs68.15 and Rs68.25 bringing cumulative losses in the open market this week to 65 paisa.

Versus the European single common currency, the rupee made a smart recovery on the opening day of the week, gaining Rs3.16 to trade at Rs104.51 and Rs104.61 on June 2, after closing last week at Rs107.35 and Rs107.44. But this recovery proved short lived as the rupee failed to maintain its overnight firmness on the second trading day of the week, when it suffered a sharp fall of 69 paisa and traded at Rs105.20 and Rs105.30 on June 3.

On June 4, the rupee rebounded and recovered 35 paisa versus the euro, changing hands at Rs104.85 and Rs104.95. It further extended its overnight gain against the euro on June 5, when it traded at Rs104.75 and Rs104.85. But on June 6, the rupee failed to hold it firmness against the euro sharply losing Rs1.15 to trade at Rs105.90 and Rs106.00. During the week, however, the rupee managed to recover Rs1.10 versus the European single common currency amid fluctuations.

In the international financial markets, the yen surged on the week’s opening day after Standard & Poor’s cut ratings on three big US securities firms and a British lender gave a grim assessment of the UK mortgage market, igniting fears of more pain from the global credit crisis. The market saw investors bailing out of risky trades, positioning the yen for its largest daily gain against the US dollar in nine weeks, while sterling fell across the board.

The dollar dropped as low as 104.03 yen and was last trading at 104.47 yen, down 1.0 per cent on the day, and on pace to post its largest one-day fall since March 26. Against the Swiss franc, the dollar fell 0.5 per cent to 1.0370. The euro tumbled 1.1 percent to 162.28 yen, its sharpest daily fall in about 10 weeks at current prices. It declined 0.7 percent to 1.6108 Swiss francs. Sterling fell 0.8 percent to $1.9653, hitting one-week lows of $1.9597 after the UK mortgage news and poor PMI data showed a stagnant manufacturing sector.

On June 3, the euro dropped to $1.5411, its lowest level in nearly three weeks, surrendering overnight gains that had pushed it as high as $1.5628. In late New York trade, it was quoted around $1.5461, down 0.5 percent on the day. The dollar raced to a session peak of 105.56 yen, but gave up some gains as US stocks fell and Lehman Brothers tumbled following a Wall Street Journal report the investment bank might need raise up to $4bn in new capital.

That saw the dollar extend gains versus yen to last trade at 105.14, up 0.6 per cent on the day.

Sterling had been smacked down from session highs above $1.97 to $1.9605, down 0.3 per cent on the day and nearing 2-week trough of $1.9594 attained on June 2. On June 4, the euro further dipped 0.1 per cent to $1.5431. Against the yen, the dollar rose 0.1 per cent to 105.23 yen, brushing off a fall in US stocks on a combination of fears of more credit-related losses and worries there would be no further cuts from the Fed. Sterling traded down 0.5 per cent at 1.9542.

On June 5, the euro vaulted to a session high of $1.5601, recovering from three-week lows of $1.5366 tested after data showed an unexpected fall in German manufacturing orders in April and building activity shrunk again in May. In late New York trade, the euro was up 1.0 percent at $1.5590. The dollar rose to three-month highs against the yen of 106.42. The pound fell to a two-week low against the dollar at $1.9464 after the Halifax UK House Price Index fell more than expected in May. It rebounded to trade around $1.9583, up 0.2 per cent.

At the close of the week on June 6, the euro was little changed at $1.5585 after edging up to a high of $1.5617, a sharp rebound from previous day’s three-week low of $1.5365 in Tokyo. The dollar rose 0.3 per cent to 106.22 yen pushing back towards a three-month peak of 106.44 yen hit on June 5. Sterling rose 0.3 percent to $1.9648 in London, recovering from an earlier slide to $1.9538 after the US unemployment rate came in at 5.5 per cent in May, jumping from 5 percent the previous month and stirring concerns that a grim jobs market may further weaken the economy.