Rupee/dollar parity showed a fluctuating trend, moving in a tight range during this week. Rising demand for dollar by foreign banks prevailed in the inter-bank market throughout the week.

Some panic buying was witnessed amid mounting tension on the border, which exerted slight pressure on the rupee. The rupee, however, restricted major losses. On the first day of trading, December 24, the rupee in the inter-bank market slipped 6 paisa to trade at Rs60.25 and Rs60.30 versus the dollar against the previous weekend close of Rs60.19 and Rs60.24. December 25 was the closed holiday. On December 26, the dollar came under selling pressure while foreign banks’ demand for dollar remained high. The rupee, however, recovered during the day gaining 10 paisa over the dollar, which traded at Rs50.15 and Rs60.20. On December 27, the rupee was almost stable after 2 paisa decline and traded at Rs60.17 and Rs60.22 against the dollar. It, however, shed 5 paisa on December 28, amid rising demand from banks to recovery year-end payments. At close of the week, the dollar was trading at Rs60.25 and Rs60.30, 6 paisa down over the previous weekend close.

Against other major currencies, the rupee continued to displayed strength at the inter-bank forex counter versus the German mark, euro, Canadian, Australian, Singapore and Hong Kong dollars, Swiss, French and Belgian francs, Dutch guilder, Danish and Norwegian krones, Italian lira, Austrian schilling, Spanish peseta, Japanese yen, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and the UAE dirham. It, however, weakened against the British pound and Swedish Krona.

In the kerb, tension at border caused dollar demand to rise. It however, had a marginal impact on the rupee, which shed only 5 paisa for buying on December 24. The rupee, however, gained 5 paisa on selling and traded at Rs60.85 and Rs60.95 against the dollar. Rising demand for dollar and panic buying by some foreign banks pushed the rupee down by 10 paisa in the kerb on December 26, when the dollar was quoted at Rs60.95 and Rs61.05. However, it recovered 5 paisa on December 27, to trade at Rs60.90 and Rs61.0 against the dollar. On December 28, the parity reverted to the week’s lowest level attained on December 26. It traded at Rs60.95 and Rs61.05 after 5 paisa decline against the dollar over the overnight level and 15 paisa below over last week’s close. At the end of the week, the gap between the inter-bank and open market rates has risen to 70 paisa from last week’s 20 paisa. However, the rupee has appreciated since September 11 events. At the end of August, the parity was quoted at Rs64.0 and Rs 64.05 in the inter-bank market and at Rs66.95 and Rs67.05 in the kerb and it was expected the rupee could touch Rs70 mark by year-end contrary to this, it now appears that after September 11 developments the rupee could hardly cross Rs61 by year-end. Compared to end-August level, the rupee has so far appreciated by 6 per cent in the inter-bank market and by 9.8 per cent in the open market. Despite this, the rupee in the past six months has weakened by 13.2 per cent in the inter-bank and by 10 per cent in the open market. In past 12 months, from January to December, the rupee has depreciated against the dollar by 14 per cent in the inter-bank market and also by 11.6 per cent in the open market.

In the international financial markets the yen held to a narrow range near three-year lows against the dollar on December 24, in listless trade, with markets closed in Tokyo and the rest of the region winding down for the holiday season. The yen has been falling across the board in recent weeks, hitting three-year lows around 129.70 to the dollar last weekend and two-year lows around 116.65 to the euro. Since the start of December, the Japanese currency has fallen by about six full yen against the dollar as one bearish indicator followed the other, highlighting a deepening slide into deflation and recession.

Christmas Eve brought little cheer for the euro in London, with the single currency falling to four week lows against the dollar as investors fretted over the introduction of euro notes and coins next week. The euro was trading down around one percent from the New York close at $0.8795. The yen was hovering at just below the 130 to the dollar level. The dollar also pushed up against the Swiss franc, at one point hitting a one-month high of 1.6760.

Sterling rose to three and a half month highs against a broadly weaker euro. The single currency suffered a broad based sell-off in thin, pre-holiday trading, shedding 1.5 per cent against sterling as concerns rose over the euro changeover on January 1, 2002. It stood at 60.80 pence per euro. Against the dollar, it was trading at $1.44 compared with $1.4377 previous weekend.

On December 25, the dollar set a three-year high against the yen in Tokyo trading on Christmas Day, shooting past 130 yen as Japanese officials continued to talk down the currency. The dollar traded at 130.74-77 yen at 5:0 pm (0800 GMT), against 129.92-96 yen in New York on December 24. Despite breaking through the key 130-yen level against the dollar. The dollar/yen is still in the process of correcting, as the yen was overvalued in the past against the dollar.

The market initially though Japanese officials would like to leave the dollar/yen between the new trading range of 125 yen to 130 yen but even though we reached the top side of the range, they continued to say the same thing. Meanwhile, the euro was slightly higher against the dollar, recovering from a slide on concerns over the risk exposure held by European banks to Argentina.

On December 26, the dollar found itself unable to top 131 yen in New York, with dealers cautious about sending the Japanese currency much lower amid complaints from other Asian nations affected by yen weakness. In illiquid trading made uneven because of holidays in the United States and Europe, the greenback reached as high as 130.99 yen, extending the general up trend that has boosted it more than 7 yen over the past month. But market participants showed reluctance to take the yen much lower after complaints from China and South Korea underscored the risks surrounding a sliding currency.

The dollar bounced from the US session’s lows below 130.50 yen in midday dealings. The US currency was marginally lower from its December 25 closing level in Asia, but still within earshot of its Asia trading high near 131 — its strongest since October 1998. The euro changed hands around 114.80 yen, down 0.10 per cent from its prior Asia closing level and off 2 units from a two-year high scaled earlier this week. Europe’s common currency traded around 87.80 cents versus the dollar, up 0.17 per cent from its previous offshore close. The euro has been unable to make much headway against the dollar, with the impending introduction of notes and coins next week.

The dollar’s three-week rise was given some pause in Tokyo as complaints from Japan’s Asian neighbours over the yen’s weakness spurred profit-taking one recent gains. With moves made volatile by a thin, year-end market, the dollar stepped back from a new three-year high of 131.02 yen to trade at 130.62/63 yen. The market was a bit nervous after the dollar hit 131 yen, lacking fresh factors or comments from officials to push it higher.

Sterling eased from its recent 5-1/2 month peak against the euro losing out to a broadly firmer single currency in a languid market. The pound remained close to 2 1/2 year highs against the troubled yen hit earlier in the day as Japanese officials appeared unperturbed by the yen’s fall.

The euro drew strength following the first rise in French business confidence since June 2000. Sterling stood at 60.96 pence, pulling itself off 5 1/2 month highs of 60.38 hit on December 26. Against the yen it was trading at 190.39 having hit highs of 191.20, its highest since July 1999. The pound edged down against the dollar to $1.4503 from $1.4531 in late New York.

The yen extended its fourth-quarter slide in New York, tumbling to a three-year low as Tokyo’s tacit approval for a weak currency drove traders to keep selling yen despite a rising outcry from Japan’s trading partners. Efforts by Tokyo to clam frayed nerves in the region over the threat of competitive currency depreciations would only slow the yen’s drop to about 140 per dollar y the middle of the first quarter of 2002.

The dollar stood at 131.68/70 yen after hitting a three-year high of 132.08 yen. The greenback has risen more than 15 per cent against the yen this year, with most of that gain coming in the past three months. The euro rose back to 116.23/39 after falling to around 115.60 yen in the morning. with all the action on the yen crosses, the single currency was sidelined on the dollar at $0.8835/40, having failed to clear resistance at $0.8870 offshore. All markets will be closed for the New Year holidays from Monday through Thursday.