Weakness persisted in the rupee/dollar parity this week in the local currency market. The rupee commenced the week on a weak note in the inter-bank market.

Down trend persisted on the first day of trading as the rupee extended its week-end’s fall versus the dollar, shedding six paisa to trade at Rs60.05 and Rs60.07 on May 22, against last week’s Rs59.99 and Rs60.01. Dollars’ buying pressure and closure of global markets weakened the rupee in the local market.

On May 23, bearish trend was observed in the inter-bank market as the rupee further extended its overnight weakness and shed another four paisa, changing hands at Rs60.09 and Rs60.10 versus the dollar. High demand for the US currency exerted downward pressure on the rupee. However sufficient dollar supply restricted any sharp fall in rupee value. Rupee weakness versus the dollar persisted on May 24, as aggressive dollar buying by leading banks kept the rupee under pressure, which lost another seven paisa for buying and eight paisa for selling to trade at Rs60.16 and Rs60.18 against the dollar.

The rupee/dollar parity continued its decline on high corporate demand, amid tight dollar supply on the fourth day. The rupee shed two paisa against the dollar to trade at Rs60.18 and Rs60.20 on May 25. It continued its weeklong decline versus the dollar and shed two paisa more to trade at Rs60.20 and Rs60.22 on May 26. Both the foreign and local banks remained engaged in purchasing dollars to meet payment requirements. During the week in review, the rupee in the inter-bank market lost 21 paisa versus the dollar.

In the open market, the rupee shed five paisa in relation to the greenback on the first day of trading during the week in review changing hands at Rs60.45 and Rs60.50 on May 22 against last week close of Rs60.40 and Rs60.45. However, the rupee managed to recover from its overnight weakness versus the dollar on May 23, gaining five paisa to trade at Rs60.39 and Rs60.44. It shed only one paisa for buying but shed three paisa for selling to trade at Rs60.40 and Rs60.47 on May 24.

The rupee depicted no major change versus the dollar on May 25 and traded at Rs60.40 and Rs60.45 after two paisa fall on selling counter. It, however, lost two paisa on May 26, when it traded versus the dollar at Rs60.42 and Rs60.47. Over the week, the rupee in the open market showed only two paisa decline against the dollar, amid fluctuations.

Versus the European single common currency, the rupee shed 15 paisa changing hands at Rs76.50 and Rs76.68 on May 22, compared to previous weekend Rs76.87 and Rs77.00. On May 23, the rupee crossed Rs78 against the euro in the early session as it surged sharply in the international market, before trimming some gains and finally traded at Rs77.40 and Rs77.50 after shedding 9o paisa for buying and 82 paisa for selling in the later session.

The rupee, however, managed to gain 25 paisa versus the euro on May 24, when it traded at Rs77.15 and Rs77.25. On May 25, the rupee extended its gain versus the euro trading at Rs76.85 and Rs76.95. The rupee lost 16 paisa to trade at Rs77.01 and Rs77.10 against the euro on May 26. Against the previous week close, the rupee lost 14 paisa over the European single common currency this week in the local market.

In the international financial markets, the dollar weakened against major currencies on May 22 in volatile trading, as investors grew nervous about the outlook for the US economy and interest rates. The US currency, however, strengthened against emerging market currencies, led by gains against the Brazilian real, with emerging market assets heavily sold across the board amid waning risk appetite.

In late trading, the euro rose to $1.286. Despite the dollar’s fall, and the euro’s encouraging gain, the euro zone currency has not decisively broken out from its recent trading range, analysts say. Against the yen, the dollar fell 0.2 per cent to 111.43 yen, well below the two-week high of 112.93 touched during European trade.

In the face of growing risk aversion, the Swiss franc gained sharply, pushing the dollar down one per cent at 1.2041 francs, and euro weaker by 0.3 per cent to 1.5491 francs. Sterling, meanwhile, firmed 0.5 per cent to $1.8862. Analysts said that dollar losses were a resumption of the currency’s generalised weak trend in recent weeks. Offsetting the dollar’s losses against major currencies were gains against emerging market currency units.

On May 23, the dollar gained against the euro and yen in technical trading as major currencies failed to break out of ranges ahead of the upcoming US holiday weekend. Earlier the yen gained against both the dollar and the euro after a ratings agency raised its view of the Japanese economy.

On May 24, an unexpected rise in new US home sales in April drove the dollar higher against the yen and helped it reverse earlier losses versus the euro. A 4.9 per cent gain in new home sales helped bolster the case for more Federal Reserve interest-rate hikes to control inflation, which would let the US currency keep its yield advantage against other major currencies. The fed funds rate, the US rate for overnight bank loans, stands at 5 per cent.

The European Central Bank is expected to lift its refinancing rate — now at 2.50 per cent — next month by at least a quarter-point. Being “long” a currency is effectively a bet it will strengthen.

The euro was down 0.4 per cent at $1.2762 in New York after climbing as high as $1.2893 overnight on a stronger-than-expected German Ifo survey for May, a key gauge of business sentiment in the euro zone’s biggest economy. The dollar was up 0.8 per cent against the yen at 112.72 yen.

The solid housing data helped reverse early dollar weakness after the government said orders for durable goods — products like cars, computers and washing machines that are made to last at least three years — fell 4.8 per cent in April. Analysts had expected a 0.5 per cent decline. Sterling fell 0.5 per cent against the dollar to $1.8700, while the dollar gained 0.7 per cent against the Swiss franc to trade at 1.2166 francs.

On May 25, the dollar slipped against the yen and euro after a robust, but slightly weaker-than-expected reading of US economic growth failed to bolster expectations for a June rate increase. The US currency weakened after revised data showed first-quarter gross domestic product rose 5.3 per cent, below expectations of a 5.7 per cent gain.

In mid-afternoon trading in New York, the dollar was down one per cent against the yen at 111.80, off previous day’s two-week high of 112.97. The euro was down 0.7 per cent against the yen at 142.98 yen. Against the dollar, the euro was up 0.3 per cent on the day at $1.2788, off its $1.2802 session peak. Trading volume was thin.

Overnight, the dollar weakened on comments from Chinese banking authorities about reining in property lending. The US currency also lost ground after Russia said it intends to invest 45 per cent of its $71.5 billion stabilisation fund - designed to mop up excess cash earned from oil sales - in euros. Sterling was up 0.2 per cent against the dollar at $1.8710. The dollar was flat against the Swiss franc at 1.2179 francs. The dollar showed little reaction to data showing US existing home sales fell 2.0 per cent in April after no changes the prior month.

At the close of the week on May 26, the dollar edged up in quiet trade with position squaring by speculators giving the currency a boost as many market players stuck to the sidelines before much-awaited US inflation data later in the session. After tumbling last week to one-year lows against the euro and sterling and eight-month troughs versus the yen, the dollar got a respite this week from investor caution over a global sell-off in emerging markets, stocks and commodities.

The spike in volatility has made many wary of taking big positions in currencies for now, while the dollar and US Treasuries have benefited from investors yanking funds out of riskier assets. With holidays looming in both the United States and Britain, market players had more reason to cover short positions. Traders said the dollar was helped up from the day’s lows after US President George W. Bush said Treasury Secretary John Snow had not spoken to him about resigning. Before Bush’s comment, Republican sources said that Snow would likely step down in mid- to late June. But traders brushed aside the speculation, saying the bigger issue is who succeeds Snow.

The dollar climbed 0.3 per cent to 112.15 yen after touching an intraday low of 111.47 yen in early Tokyo trade. The euro slipped to $1.2770 from around $1.2800, but it edged up to 143.20 yen. The yen was unable to get a boost from data showing core consumer prices in Japan rose 0.5 per cent in April from a year earlier, the sixth straight increase and providing more evidence that seven years of deflation are history.

In London, the dollar held steady against the euro with currencies stuck in ranges ahead of much-awaited US PCE inflation data later in the session and a long weekend in the United States and Britain. After tumbling last week to one-year lows against the euro and sterling and eight-month troughs versus the yen, the dollar enjoyed a respite this week thanks to investor caution over a global sell-off in emerging markets, stocks and commodities.