In recent weeks, the local currency market has been on a roller coaster ride with corporate importers engaged in booking L/C’s upon intervention of SBP. As a result, banks were again scrambling for dollars to meet client needs with very few sellers. Panic buying of dollars by importers has caused scarcity of the US currency, which has attained new peak. The rupee has been under pressure since the start of year 2008 and so far it has declined by nearly five per cent against the dollar.

Soaring oil prices in the world market and political instability are the major factors behind the fall in the rupee’s value during the last 4-5 months. The currency analysts and economists are of the view that the rupee may face more erosion in the coming days due to surging oil prices and uncertain condition on the political and economic fronts. Recent sharp falls in the rupee value has widened the gap between open and inter-bank rates, ranging between 80 and 90 paisa during the last three months.

Speculative buying of dollars was observed in the inter-bank market on the opening day of the week. Panic buying by importers sent the rupee to record lows against the American currency. Dollar supply remained tight throughout the day. Most exporters preferred to remain in the sidelines speculating further deterioration in rupee/dollar parity. During the day the rupee lost 68 paisa on the buying counter and another 70 paisa on the selling counter on May 5. At close of the day, the dollar was changing hands at Rs65.80 and Rs65.85 against previous week close of Rs65.12 and Rs65.15.

On May 6, the rupee extended its weakness further, touching all time low of Rs66.79 against the US dollar. However, SBP intervention helped the rupee to recover some ground but the local currency continued to remain under pressure. At close, the dollar was trading at Rs65.20 and Rs65.25, up 60 paisa over the previous day’s close. On May 7, the rupee again came under renewed pressure versus the dollar. It shed Rs1.40 against the dollar in single day trading as importers continued panic buying of dollar at Rs66.60 and Rs66.70. The rupee weakness persisted on May 8, when it further dipped against the dollar, losing 50 paisa on the buying counter and another 45 paisa on the selling counter to trade at Rs67.10 and Rs67.15.

As a move to restrict the rupee from falling further, the State Bank of Pakistan halted indefinitely all exchange companies from exporting British Pound, Euro and Dirham on May 9. The SBP also withdrew the facility of Nostro Account with banks abroad and instructed the exchange companies that all permissible inflows/outflows of the exchange companies are to be routed only through FCY Accounts maintained with commercial banks in Pakistan. The move helped the rupee to strengthen against the dollar in the inter bank market. Finally it closed the day at Rs67.10 and Rs67.15, down 190 paisa against the dollar over the previous week close.

In the open market, the rupee nose dived, falling 85 paisa in terms of dollar on the week’s opening day trading at Rs66.65 and Rs66.75 on May 5 against previous week close of at Rs65.80 and Rs65.90. On May 6, the rupee surpassed Rs 7 barrier due to increasing demand for dollars by the inter bank market. It lost 30 paisa to trade at Rs66.95 and Rs67.05 against the dollar. On May 7, the dollar at one stage attained new peak at Rs67.30 but it quickly recovered and closed the day unchanged at its overnight levels of Rs66.95 and Rs67.05.

On May 8, the dollar remained volatile as the rupee failed to hold its overnight firmness posting fresh losses of 75 paisa against dollar and traded at Rs67.70 and Rs67.80. The dollar in open market remained costlier, as aggressive import booking pushed the rupee as low as 69.70/69.80 to a dollar on May 9, despite the central bank move to check dollar from rising sharply in the inter-bank market. Later in the day, the rupee reportedly strengthened after the heavy intervention by SBP through National Bank of Pakistan and Citibank strengthened the rupee further and a deal was reported at PKR 66 to a dollar.

Versus the single European common currency, the rupee shed 30 paisa on May 5, changing hands at Rs102.70 and Rs102.80 after closing last week at Rs102.40 and Rs102.50. The rupee continued its downtrend versus euro, further shedding 80 paisa to trade at Rs103.50 and Rs103.60 on May6. It extended its overnight slide versus euro on May 7, posting fresh losses of 20 paisa and closing at Rs103.70 and Rs103.80. On the fourth trading day, however, the rupee managed to gain 47 paisa to trade at Rs103.23 and Rs103.33 on May 8.

In the international financial market, the dollar fell on the opening day of the week as oil prices hit a record high, sparking debate about the strength of the US economy. The greenback fell 0.5 per cent to 104.80 yen on May 5, as doubts about the US outlook dulled investor risk appetite. Trading volume was lighter than usual with London and Tokyo closed for public holidays. The euro rose 0.4 per cent to $1.5489. The single currency is still well below its $1.6018 record high set last month.

On May 6, the dollar edged lower against the euro and yen, its second straight daily decline, after a bigger-than-expected quarterly loss at Fannie Mae suggested more financial market turmoil ahead. Fannie Mae, the largest provider of US home financing, posted a $2.19 billion loss in the first quarter as the housing market took a turn for the worse. Analysts said that was worrisome for the dollar because it suggested problems in the troubled US housing sector have yet to work their way through the economy.

Late in New York, the euro was 0.2 per cent higher on the day at $1.5525. It also drew support from euro zone service sector data that was slightly stronger than expected. Last week, the dollar rose against the euro, boosted by better-than-expected first-quarter US growth and a smaller-than-expected monthly job loss in April. The dollar also edged down 0.2 per cent to 104.69 yen. The greenback fell 1 percent against the Canadian dollar to C$1.0026. Sterling fell against the dollar and euro as markets braced for further erosion in UK service sector data for April. The pound was down almost 0.2 percent versus the dollar at $1.9686.

On May 7, the dollar rose as a surprise advance in US productivity added to gains booked after a Federal Reserve official said the central bank must stand ready to raise interest rates to combat inflation. The euro tumbled to a session low of $1.5367 before easing to $1.5404, still down 0.8 per cent on the day. Against the yen, the greenback was little changed at 104.75 after earlier climbing as high as 105.58. The dollar also got a boost from data showing higher-than-expected productivity gains in the first quarter and a lower-than-expected rise in unit labour costs.

A run of poor economic data has pressured the euro in recent weeks after it hit a record high above $1.60, peeling away perceptions that the euro zone was insulated from a US downturn. At the same time, increased optimism about the US outlook was seen boosting the dollar. The dollar also rose sharply against sterling, which hit an 11-week low at $1.9504 after weak consumer sentiment and employment data kept investors focused on slower UK growth.

On May 8, the euro rebounded from a two-month low against the dollar after European Central Bank (ECB) President said inflation remains top concern, signaling the bank won’t cut interest rates anytime soon. That helped lift the euro off a two-month trough below $1.53, pushing it as high as $1.5440. It last changed hands at $1.5396, little changed from a day earlier. The dollar eased 0.7 per cent to 103.90 yen. The dollar fell 0.3 per cent to 1.0520 Swiss francs. Sterling rose 0.2 percent to $1.9585, after sliding as far as around $1.9500 to match its weakest level since late February.

At the close of the week on May 9, the euro held firm against the dollar after rebounding from a two-month low on reduced expectations for European Central Bank rate cuts. The euro had fallen to a two-month trough below $1.53. It edged up to $1.5414 from late US trade. The dollar was down 0.7 per cent against the yen at 102.95 yen. Sterling fell to its lowest in over two months against the dollar as investors looked past the Bank of England’s decision to hold rates steady this month and focused on the high possibility of an easing in June. It was down 0.4 percent on the day at $1.9470, having hit $1.9460 earlier - last seen on February 21.