The local currency market observed a long weekend on account of Eid-ul-Fitr. Trading in inter-bank as well as open market remained suspended for five days from October 22 to 26. During pre-Eid holidays, the local currency market witnessed mixed sentiments with the rupee/dollar parity moving in a narrow range.

According to most currency dealers, the rupee had gained momentum versus the US currency on easy supply of dollars on account of increased inflows of remittances from overseas Pakistanis.

Prior to Eid holidays leading dealers observed that the rupee gained three paisa versus dollar closed the week at Rs60.61 and Rs60.63 in inter-bank market.

In the open market, however, the rupee fell in relation to dollar and ended the week at Rs60.55 and Rs60.60. The rupee also slid versus euro, shedding 27 paisa to trade at Rs76.03 and Rs76.13.

When trading resumed after a long weekend on October 27, the rupee moved cautiously versus the dollar amid post-holidays session, while the market was still in a holiday mood.

In the inter bank market, the rupee opened the trading session on a negative note versus the dollar, shedding two paisa over the previous week close.

It was seen changing hands versus the dollar at Ra60.63 and Rs60.65.

After observing week long holidays, the open market, however, opened on a positive note with the rupee gaining five paisa on the buying counter. It, however, remained unchanged on the selling counter and traded at Rs60.50 and Rs60.60 versus the dollar on October 27.

The rupee also lost 35 paisa versus the European single common currency, which was seen changing hands at Rs76.58 and Rs76.68.

Throughout the month of October, the rupee was seen in a comfortable position versus the dollar and euro in the local currency market. It traded in a narrow range.

Though demand for dollar existed and importers, in particular, were seen purchasing dollar, large inflows of remittances from workers abroad and increased dollar selling by returning Pakistanis ahead of Eid-ul-Fitr restricted any sharp decline in rupee value in relation to American and European currencies.

In October, the rupee in the inter-bank market has so far lost six paisa, while in the open market it gained ten paisa for buying and five paisa for selling versus the dollar.

However, versus the European single common currency, the rupee managed to show strong upturn as it recovered 60 paisa against the euro amid fluctuations.

On September 30, the dollar was quoted in terms of rupee at Rs60.57 and Rs60.58 in the inter-bank market, and Rs60.60 and Rs60.65 in the open market, while the European single common currency was at Rs77.18 and Rs77.28.

On the international front, based on Reuters Daily forex report, the dollar gained on October 23, as many investors prepared for the Federal Reserve to reiterate its concern about raising US inflationary pressures.

The policy-making Federal Open Market Committee (FOMC) was widely expected to hold it benchmark interest rate steady at 5.25 per cent for the third meeting in a row, so the statement that accompanies the decision remained the focus of the market’s attention.

Many investors expected the Fed to repeat its concern about building inflationary pressures and have bought dollars aggressively in the past few weeks.

The dollar came under fire toward the end of last week after the release of data showing a surprising fall in regional manufacturing activity.

Much of the opening week’s trading was centred on unwinding some of those shorter-term bets against the greenback. In New York, the euro was down 0.5 per cent at $1.2547, near key support in the $1.2540/50 area.

A fall to $1.2530 would pave the way for a fresh downside test of the psychologically important $1.2500 level, traders said.

The dollar has succeeded in holding key technical support against the euro and this is basically prompting the dollar to recoup some of last week’s losses.

The dollar was up 0.5 per cent against the yen at 119.31 yen, and rose 0.6 per cent against the Swiss franc to 1.2668 francs. Sterling fell 0.5 per cent to $1.8731.

Some analysts said softening oil prices and the slight widening in spreads in the dollar’s favour following a rise in global short-end interest rates also contributed to the greenback’s rally.

On October 24, the dollar drifted higher but stayed with tight ranges, with little to guide trading other than expectations for the Federal Reserve to keep interest rates intact amid lingering concerns about the pace of US inflation.

This week’s gains were supported by growing speculation that the Fed, while widely expected to keep its federal funds rate at 5.25 per cent unchanged, would re-emphasis its concern about inflationary pressures in a statement accompanying its rate decision.

With this in mind, players in the futures markets have begun pricing in the possibility of a rate hike by early next year and that has modestly supported the dollar.

In New York, the euro slipped 0.1 per cent against the dollar at $1.2536, while sterling was down 0.2 per cent at $1.8693.

Against the Swiss franc the dollar rose 0.2 per cent to 1.2696 franc. The dollar also strengthened against the yen, trading 0.2 per cent higher at 119.61 yen.

The yen remained under light selling pressure after Japan’s top financial diplomat indicated he was not too concerned with the level of the yen.

Japanese exporters were also said to be slowing the dollar’s rise against the yen as it neared the 120 area again, traders said. Near-term support was seen at 119.20 yen.

Sterling eased 0.1 per cent to $1.8720 against the dollar and 0.1 per cent to £0.6702 against the euro after the October industrial trends survey from the Confederation of British Industry provided a downbeat snapshot of the UK economy and hinted that interest rates might peak next month.

On October 25, the euro received a boost from a stronger-than-expected survey of German business confidence.

The headline Ifo business climate index rose from 104.9 in September to 105.3 in October, beating the consensus expectations for a fall to 104.5, with the manufacturing component of the index rising to its highest level since June.

In New York, the euro was up 0.1 per cent against sterling to £0.6705 and 0.4 per cent against the dollar to $1.2590.

But the euro was flat against the yen at ¥119.10, was supported by forecast-beating trade data. Elsewhere, the Australian dollar climbed 0.4 per cent to a six-week high of $0.7610 against the dollar after stronger-than-expected inflation figures.

The New Zealand dollar fell 0.3 per cent to $0.6610 after inflation figures fell short of forecasts.

The Australian dollar is also better placed than the kiwi to take advantage of a still reasonable global economic outlook as Australia exports more industrial commodities than New Zealand.

The Thai baht rose to its highest level against the dollar since January 2000, climbing 0.2 per cent to Bt37.11. The baht has now risen 1.2 per cent this month and recovered all the losses it incurred after last month’s military coup, with traders noting a sharp rise in foreign interest in the Thai property market.

Sterling rose 0.2 per cent against the dollar to $1.8775 after hawkish comments from Charles Bean, the bank of England’s chief economist, cemented the widely held view that the UK interest rates would rise next month.

At the close of the week on October 27, the yen struck a record low versus the euro and fell against the dollar after soft Japanese consumer price data suggest that the Bank of Japan could wait until 2007 to next raise interest rates.

But the yen later rebounded, partly as Japanese government bonds trimmed much of their gains after the data did nothing to change the outlook for the BoJ to press ahead with higher rates.

The yen also recovered after Japan’s top financial diplomat told Reuters that he does not expect the yen to weaken further given Japan’s healthy economic fundamentals, echoing comments from earlier in the week.

The nationwide core consumer price index in September climbed 0.2 per cent from a year earlier, a touch below expectations for a 0.3 per cent increase and slowing from a 0.3 per cent rise in August

The market is going to wait for the BoJ’s economic outlook report next week to get a better idea of whether a rate rise before year-end is still on the cards.

The BoJ’s semi-annual outlook report on the economy and rates, which outlines the central bank’s forecasts and broader policy outlook, is due next week.

The euro hit a record high of 150.80 yen on electronic trading platform EBS before pulling back to 150.30 yen, little changed from late US trade on October 26.

The dollar climbed to 118.73 yen before paring gains to trade 118.40 yen largely unchanged from levels in late New York trade.

The tame CPI reading also pushed the sterling to an eight-year high of 224.34 yen at one point. The euro was a tad higher on the day at $1.2698 after earlier rising to a three-week peak of $1.2715 on the EBS.

The euro showed little reaction to comments by European Central Bank Executive Board member, who said that the monetary policy cannot offset short-term changes in inflation from shocks to the economy such as changes in oil prices.

He was speaking at a symposium in Osaka, western Japan. The yen got a slight boost after vice finance minister for international affairs, said he does not expect the yen to weaken further given Japan’s healthy economic fundamentals.

The euro bought $1.2736 in late New York trading, compared with $1.2693 late October 26, reversing its morning dip after the Commerce Department reported that economic growth in the third quarter slowed to 1.6 per cent, its slowest pace in more than three years.

The dollar was also lower the Swiss franc, falling to 1.2484 from 1.2536; and against the Canadian dollar, falling to 1.1190 from 1.1230.

Sterling hit a one-month high against the dollar as weaker-than-expected US third quarter growth data raised the prospect of a narrowing spread between US and British interest rates.

US gross domestic product expanded at a 1.6 per cent annualised rate during the third quarter, down from 2.6 per cent in the second quarter - the slowest advance since 1.2 per cent growth in the first quarter of 2003.

The data were seen cementing the markets’ view that US rates would not be raised soon, with some analysts suggesting that a cut from 5.25 per cent could be on the cards.

That contrasted with almost cast-iron expectations for a sterling-boosting British rate rise to five per cent in November, and possibly further tightening in 2007.

The pound was up 0.4 per cent on the day at $1.8978, having hit a one-month peak of $1.9003.

Against the euro, sterling was flat at 67.08 pence, but the euro’s rally earlier to a record high against the yen sent sterling to a 8-year high of 224.36 yen.

Hawkish sentiment on British interest rates was supported in a report released overnight by a leading economic think tank.