IN the local currency market, traders witnessed mixed sentiments last week. On the opening day, high demand for dollars by the importers forced the rupee to give up its weekend’s rally.

As a result, modest erosion was seen in the rupee value, which shed two paisa versus the dollar in the inter-bank market, changing hands at Rs60.20 and Rs60.22 on June 26. Last week, the parity had closed at Rs60.18 and Rs60.20.

The rupee remained unchanged at its overnight level of Rs60.20 and Rs60.22 on the second day of the week in review, amid balanced demand and supply of dollar on June 27. On June 28, fresh inflows of dollar helped the rupee to depict some gains versus the greenback. The rupee managed to recover two paisa against the dollar on the third day of the week with the rupee trading at Rs60.18 and Rs60.20.

A large number of dollar buyers were present in the market but there was no seller. The situation pushed the local currency down modestly on the fourth day of the week in review. As a result a falling trend was seen in the inter-bank market on June 29, when the rupee shed two paisa to trade at Rs60.20 and Rs60.22.

At the end of the FY 06, the dollars’ supply improved in the market and enabled the rupee to stand firm versus the dollar. Consequently, stable trend was witnessed in the inter-bank market on June 30, where the rupee maintained its overnight levels and traded unchanged at Rs60.20 and Rs60.22. During the week as a whole, the rupee in the inter-bank market shed only two paisa versus the dollar.

In the open market, the rupee commenced the business on a negative note on June 26, shedding eight paisa in terms of the dollar and traded at Rs60.78 and Rs60.85 in the early trading hours. But by the close of the day, the rupee extended its slide, losing six paisa more versus the dollar, resulting in a net loss of 14 paisa in a single day, to trade at Rs60.84 and Rs60.94 on rising demand for dollar by different banks to meet the payment requirements. Last week it closed Rs60.70 and Rs60.75.

On June 27, the rupee resisted further erosion versus the dollar, recovering 14 paisa for buying and 19 paisa for selling to trade at Rs60.70 and Rs60.75. On June 28, the rupee managed to extend its overnight firmness and it further gained three paisa versus the dollar, changing hands at Rs60.67 and Rs60.72. On June 29, the rupee maintained its overnight level versus the greenback and traded at Rs60.67 and Rs60.72.

Bearish trend persisted in the open market on June 30, as the rupee shed three paisa versus the dollar to trade at Rs60.70 and Rs60.75 on higher demand for dollar during the day. Over the previous week close, the rupee in the open market remained stable, amid fluctuations this week. It closed the week at its previous weekend’s levels.

Versus the European single common currency, the rupee weakness persisted throughout the week in review. The rupee lost 44 paisa on the opening day of the week to trade at Rs76.37 and Rs76.47 on June 26, against last week close of Rs75.93 and Rs76.03. The rupee further lost 19 paisa on June 27, and traded at Rs76.57 and Rs76.66 versus the euro.

On June 28, the rupee shed another 17 paisa, as the euro traded at Rs76.40 and Rs76.50. On June 29, the rupee slipped versus the euro, losing 11 paisa to trade at Rs76.29 and Rs76.39. Finally it closed the week at Rs77.30 and Rs77.40 on June 30, after falling one-rupee versus the European common currency on June 30. This week, the rupee the rupee shed Rs1.37 versus the euro.

In the international financial markets, tough talk on inflation from European Central Bank officials on June 26 and revived concerns that countries may switch some dollar reserves into euros pushed the dollar lower against the euro zone single currency. The dollar has rallied more than two per cent so far in June.

Markets are primed for the ECB to raise interest rates by a quarter points at its August 31 meeting, but some investors have speculated about an early August hike.

The price action reversed last week’s dollar rally, mounted when markets were growing uncertain about the strength of the euro zone economy and having doubts about when the Bank of Japan would end its zero-interest-rate policy. Sentiment on the euro remained strong after the ECB governing council member, who said euro zone inflation risks have moved higher and growth may be better than expected.

The Fed is widely expected to lift overnight US lending rates this week and again in August by a quarter percentage point for the 17th and 18th consecutive time, to 5.50 per cent, according to the interest rate futures market. The futures market reflects expectations US rates will remain more than 200 basis points over euro zone rates by the end of the year.

The euro carved out a record high against the yen, climbing above the previous peak of 146.28 set last week to 146.39. Against the dollar, the euro was at $1.2575, just off a session high above 1.2600. The euro also got a boost after the central bank governor of the United Arab Emirates said the bank plans to convert 10 per cent of its $23 billion currency reserves into euros, although a timetable has not been put in place. Against the yen, the dollar was at 116.28, down 0.2 per cent from last week close. Sterling rose 0.3 per cent to $1.8232.

On June 27, the dollar was largely unchanged against major currencies as many dealers awaited the outcome of a Federal Reserve meeting for signals on the course of interest rates. In New York, the euro was roughly flat against the dollar at $1.2576 in listless trading. The dollar hardly budged against the yen at 116.28.

Reflecting how unsure investors were heading into the Fed meeting, the US stock prices fell on uncertainty over whether the central bank this week would indeed stop raising borrowing costs after more than two years of rate hikes. But Treasury debt yields slipped, partly due to talk of an imminent pause. Against the Swiss franc, the dollar was also little changed at 1.2432 francs. Sterling, meanwhile, was slightly lower at $1.8214.

On June 28, the dollar inched up in quiet trade in anticipation that the Federal Reserve will leave the door open for more interest rate increases after a widely expected hike this week. However, some dealers thought the market was overreaching and were expecting the dollar to give up ground after a rise in the benchmark federal funds rate to 5.25 percent from five per cent anticipated at the end of Fed policy talks now under way.

In late trading, the euro was down 0.25 per cent against the dollar at $1.2551.

The euro has been stuck in a range of roughly $1.25 to $1.27 for three weeks so is now near the bottom of that range. The dollar was up 0.2 per cent at 116.43 yen, after rising to a two-month high on June 27, around 116.70. Against the Swiss franc, it rose 0.3 per cent to 1.2460 francs, while sterling fell 0.2 per cent to $1.8178.

On June 29, the dollar tumbled after the Federal Reserve raised interest rates, as expected, but left open the possibility its two-year rate raising campaign could end in August. The Fed raised overnight rates by a quarter percentage point for the 17th straight time, to 5.25 per cent, but said slowing economic growth should help limit inflation. The interest rate futures market reflected about a 60 percent chance the Fed will hike rates by a quarter points again in August, sharply down from around 80 per cent earlier.

The euro reversed small loss after the Fed’s policy statement was released, rising 0.8 percent to a session high of $1.2667. The dollar had its largest single-day decline against the yen in two months, dropping more than one per cent to 114.86 yen.

The dollar had rallied 2.4 per cent against several major currencies in June, largely due to more aggressive language used by Fed officials in speeches to describe their tough stance on inflation.

Expectations for more interest rate hikes by the Fed and other central banks around the world sent global equity markets reeling, and investors pushed the dollar higher in a rush to a currency seen as a safe haven. But the policy statement on Thursday has brought that to an apparent end. Against the Swiss franc, the dollar was down 0.6 per cent to 1.2378 francs, while sterling jumped 0.4 per cent to $1.8257.

At the close of the week on June 30, the dollar hit a three-week low against the euro, extending losses after the Federal Reserve gave the clearest signal yet it may soon take a break from a two-year campaign of non-stop interest rate increases.

The Fed said slowing economic growth should help rein in inflation after it lifted overnight rates for a 17th straight time to 5.25 per cent, as widely expected.