The dollar and euro continued to dominate the rupee in the local currency market this week. According to most analysts, sharply deteriorating trade and payment deficit and political uncertainty is a leading factor behind the dollars surge in the market. In the local currency market, the rupee this week assumed a weaker trend versus the dollar, after remaining strong in the previous week. Tight dollar supplies in inter bank market exerted downward pressure on the rupee/dollar parity on the opening day of the week.

The rupee posted a sharp fall of 25 paisa to trade at Rs62.23 and Rs62.25 per dollar on February 25, after closing last week at Rs61.98 and Rs62.01. It further extended its weakness versus the dollar on February 26, as importers rushed to the market to buy dollars to cover rising payments. The demand for dollar accelerated sharply, which forced the rupee to shed 31 paisa on the second trading day, bringing cumulative fall in rupee value against the dollar to 56 paisa in two days. As a result, the dollar was seen changing hands at Rs62.54 and Rs62.57 during the day.

Slight Improvement in dollar supplies on February 27, helped the rupee to resist further weakening versus the US unit, amid modest fluctuations. The rupee was seen changing hands at Rs62.52 and Rs62.56 after gaining two paisa against the dollar. Further improvement in dollar supplies helped the rupee to recover another two paisa on buying counter and four paisa on selling counter amid increased dollar demand. The traded at Rs62.50 and Rs62.52 on February 28.

On February 29, the rupee extended its overnight gains versus the dollar and recovered another five paisa to trade at Rs62.45 and Rs62.47 on improved inflows of dollars, bringing cumulative gains in the last three successive days to nine paisa. As a result, the rupee in the inter bank market managed to reduce its losses versus the American currency to 47 paisa during the week in review.

In the open market, the rupee commenced the week on dismal note, falling sharply by 15 paisa against the greenback due to heavy rush of dollar buyers. The dollar was t at Rs62.35 and Rs62.45 on February 25, after closing previous week at Rs62.20 and Rs62.30. The rupee continued to accumulate losses against the dollar on February 26 as it slipped by another 25 paisa with the dollar changing hands at Rs62.60 and Rs62.70, bringing cumulative losses in first two days of trading to 40 paisa. The rupee shed its value sharply due to increased demand by the inter-bank market.

On February 27, the rupee managed to hold its overnight levels against the dollar, despite rising demand by the inter-bank market and traded at Rs62.60 and Rs62.70. On the following day, the it managed to gain modest strength over the dollar by picking up 10 paisa as dollar supplies improved in the inter bank market. At the close of the day, the dollar was trading at Rs62.50 and Rs62.60. Finally it closed the week on a happy note, picking up five paisa to trade at Rs62.45 and Rs62.55 on February 29. The rupee in the open market suffered 25 paisa loss against the dollar this week.

Versus the European single common currency, the rupee maintained its weekend level and traded unchanged at Rs92.25 and Rs92.35 on February 25. However, it suffered sharp losses on the following day, as the euro gained 30 paisa and traded at Rs92.55 and Rs92.65 on February 26. The rupee continued its falling trend on the third trading day further losing 95 paisa at Rs93.50 and Rs93.60 on February 27.

The rupee extended its losses versus the euro on February 28, when it shed 20 paisa more against the European common currency, changing hands at Rs93.70 and Rs93.80. Finally the rupee touched new lows versus the euro, surpassing Rs94 mark after shedding another 40 paisa on February 29. At the close of the day, the euro was trading at Rs94.10 and Rs94.20. This week, the rupee suffered cumulative losses of 155 paisa against the European single common currency.

On the international front, the dollar raced to a session high of 108.21 yen before retreating in late trade to around 108.06 yen, still up 0.8 percent on the day. The euro jumped to a five-week high of 160.41 and last traded up 0.7 per cent at 160.19 yen. The euro was little changed at $1.4824, taking a breather after hitting a three-week peak of about $1.4862 reached last weekend. The New Zealand dollar, which has the highest interest rates among industrialised countries at 8.25 per cent, rose to levels not seen since it was floated 23 years ago.

The kiwi hit a high near $0.8114, according to Reuters data, before slipping to trade little changed at $0.8091. The Canadian dollar was also a big winner on the day. The US dollar fell 1.6 percent to C$0.9952. In London, sterling steadied versus the dollar as news of growing mortgage approvals eased concerns about a potentially sharp slowdown in the housing market. Mortgage approvals - seen as a forward looking indicator - picked up from near record lows in January The pound was steady at $1.9674. However, there were some signs that not all is rosy with the UK economy.

On February 26, the dollar tumbled to record lows against the euro and a basket of key currencies after weak data added to worries over the ailing US economy and a Federal Reserve top official signalled more interest rate cuts. Compounding the dollar’s woes was news that German corporate sentiment unexpectedly rose in February, suggesting that the European Central Bank was unlikely to ease monetary policy in the near-term. That left investors focusing on interest rate differentials between the United States and the euro zone.

The Fed has lowered its benchmark overnight lending rate by 2.25 percentage points to three per cent since mid-September, while the ECB’s main refinancing rate has been held steady at four per cent. The euro surged to an all-time peak of $1.4982, beating the previous record of $1.4966 touched on November 23. It was last trading around $1.4965, about 0.9 percent higher on the day. The dollar was also hammered versus the high-yielding Australian and New Zealand dollars, which also benefited from firmer US stocks. The Australian dollar rose 0.7 percent to US $0.9327.

The New Zealand dollar rose to a 23-year post-float high against the dollar, climbing as high as $0.8158 before retreating to $0.8145, up 0.4 per cent on the day. Oil prices above $100 a barrel buoyed the Canadian dollar against its US counterpart. The dollar last traded down 1.3 percent at C$0.9827. The dollar came close to touching a record low versus the Swiss franc, down 1.3 per cent at 1.0755 Swiss francs. After reaching a high of $1.9753 - a level last seen on February 5 - sterling retreated to $1.9723, up 0.3 percent on the day.

On February27, the euro surged as high as $1.5143. For the first time it has climbed above $1.51 in its nine-year history. It last traded at $1.5135, up 1.1 per cent on the day. Rallying commodity prices helped drive currencies like the Australian dollar, which rose to a 24-year peak against the dollar of $0.9431, according to Reuters data. It last traded up 1 percent at $0.9426. The New Zealand dollar jumped to a fresh 23-year post-float peak of $0.8213. Against the Canadian dollar, the US dollar fell 0.3 percent to C$0.9801. Dollar/yen was down 0.9 per cent at 106.34. The pound rose against a broadly weaker dollar to $1.9903, up about 0.2 per cent on the day, but remained off an earlier two-month high near $2.

On February 28, the euro vaulted to $1.5229 for the first time in its nine-year history, according to Reuters data. It was last trading at $1.5211, up 0.6 per cent on the day. The euro has surged almost five per cent in roughly three weeks and investors see plenty of scope for further gains. The dollar dropped to a five-week low of 105.08 yen. It last traded down 1.0 per cent at 105.34 yen. Against the Canadian dollar, the greenback fell 0.4 per cent to C$0.9760. The dollar fell to a record low against the Swiss franc at 1.0485. It last traded at 1.0504, down 1.2 per cent on the day. Against the dollar, the pound added around a third of a percent to $1.9876.

At the close of the week on February 29, the dollar broke below the psychologically important 105.00 yen level in early Tokyo trade, triggering a wave of stop-loss selling orders that drove it down as far as 104.57 yen, its lowest since May 2005. The euro hovered around $1.5180, down 0.3 percent on the day and pulling back from a jump to an all-time high of $1.5231 on February 28. Against sterling, the dollar hovered near a two-month trough hit earlier in the week. The pound eased a third of a percent against the dollar $1.9872.