The rupee is continuously on decline against the dollar since past eight months on account of weak economic numbers and political uncertainty.

It has depreciated by around 10 per cent during the current fiscal year and has also lost more than 23 per cent of its value against dollar in the 12 months to mid- August this year. Falling trend in the foreign reserves, soaring inflation, widening trade and fiscal deficits, and crisis over President Pervez Musharraf’s impeachment is having negative impact on financial markets for the last several months badly affecting domestic and foreign investment. Even the State Bank measures to restrict the rupee from falling further have not proved successful so far.

This weak, heavy dollar buying, mainly by importers, amid tight inflows continued exert downward pressure on the rupee/dollar parity in the inter bank market. The rupee posted a sharp decline over the dollar, losing 57 paisa on the buying counter and 60 paisa on the selling counter on the opening day of the week. It traded at Rs73.35 and Rs73.40 on August 11 as against previous weekend’s Rs72.78 and Rs72.80. The rupee/dollar parity remained under demand pressure on the second trading day as the rupee further extended its overnight losses, shedding 37 paisa for buying and 35 paisa for selling. The dollar traded at Rs73.72 and Rs73.75 on August 12.

On August 13, the rupee nose dived touching historic lows against the dollar in the inter bank market after it lost 128 paisa on the buying counter and another 135 paisa on the selling counter, due to mounting dollar demand amid short supplies. The rupee was seen changing hands versus the dollar at Rs75.00 and Rs75.10 in process of trading. Trading in currencies remained suspended in the inter bank market on August 14, on account of public holiday to celebrate Pakistan’s 61st Independence Day.

When trading resumed, after a day break, on August 15, panic dollar buying was reported in the inter bank market, which pushed the rupee to record lows versus the dollar. At one stage during the day, the dollar was about to break Rs77 mark before closing the day at Rs76.40 and Rs76.50. The rupee was lower by 140 paisa over the previous day’s close. On cumulative basis, the rupee lost Rs3.62 on the buying counter and Rs3.70 on the selling counter against the dollar in the inter bank market this week.

In the open market, the rupee/dollar remained under demand pressure and continued its downtrend on the opening day of the week. The rupee extended its previous week losses versus the dollar, shedding up to 70 paisa after closing last week at Rs73.10 and at Rs73.30 due to hectic dollar buying and traded at Rs 73.70 and Rs74.00 on August 11.

The falling trend persisted on August 12, when the rupee further lost 50 paisa for buying and 40 paisa for selling, changing hands at Rs74.20 and Rs74.40 against the dollar.

On August 13, the rupee crossed Rs75 barrier after posting sharp losses against the US currency. The dollar closed the day at Rs75.25 and Rs75.30, down 110 paisa over the preceding day close. The market was closed on August 14 for Pakistan Independence Day. On August 15, the rupee weakened further against the dollar as panic dollar buying posted sharp losses in rupee value up to 170 paisa during the day. At close, the dollar was seen changing hands at Rs76.50 and Rs77.00. During the week in review, the rupee in the open market suffered losses to the tune of Rs3.70 against the dollar.

The euro fell in the world market due to weak eurozone data. As a result, the local currency continued its upward rising trend versus the European single common currency.

It managed to hold its overnight firmness on the first trading day of the week in review, rising by 60 paisa on buying and 55 paisa on selling, changing hands versus the European single common currency at Rs109.80 and Rs110.00 on August 11. The rupee had closed last week at Rs110.40 and Rs110.55.

The rupee further gained 40 paisa for buying and another 50 paisa for selling, changing hands at Rs109.40 and Rs109.50 on August 12. However, it failed to hold its firmness over the euro on August 13 and shed 120 paisa on buying counter and 110 paisa on the selling counter to trade at Rs110.90 and Rs111.10 on the third trading day. The rupee decline persisted for the second consecutive day on August 15, when it suffered 90 paisa loss and traded at Rs111.80 and Rs112.00 versus the euro. During the week, the rupee managed to restrict its decline against the European single common currency to 140 paisa.

On the international front, the dollar rallied to a five-and-a-half month high against the euro on the week’s opening day, boosted by another drop in crude oil prices and speculation that the slowdown blighting the US economy was spreading world-wide. Mounting signs of economic difficulties in Europe, Asia and Australia have diminished prospects of higher interest rates outside the United States, bolstering demand for the dollar. Declining oil prices helped ease worries about the impact of higher energy costs on the US economy and also helped boost demand for the greenback.

The euro, which last week suffered its biggest weekly fall since its 1999 inception, briefly fell below the $1.49 level on August 11. In late trading in New York, it was 0.7 per cent lower on the day at $1.4904, after hitting $1.4881, the currency’s lowest trading level since February 26.

The dollar was steady at 110.13 yen. Sterling fell to a 21-month low against the dollar as concerns about the health of the UK economy undermined sentiment. It fell as low as $1.9122, its lowest since November 2006, before recovering to $1.9185. The franc was slightly higher against the dollar, trading at 1.0806 per dollar compared to last week close of 1.0822.

On August 12, the dollar slipped against the euro breaking a five-session rally as investors locked in profits ahead of key economic data later in the week.

The dollar has rallied more than four per cent against the euro this month with help from a sell-off in oil prices and growing fear economies elsewhere may slow at a faster pace than in the United States. The single European currency edged up 0.1 percent to trade at $1.4923, after earlier touching a six-month low of $1.4814. The dollar was 0.7 per cent lower at 109.33 yen, a day after hitting a seven-month peak of 110.40 hit on the EBS trading platform. Sterling fell to a 1-1/2 year low versus the dollar below $1.90, down 0.7 per cent from a day earlier.

On August 13, the dollar rose for a ninth consecutive session against a basket of currencies, continuing to benefit from expectations that economic growth in Europe and Asia may slow more sharply than in the United States. In late afternoon trading in New York, the dollar was up 0.3 per cent against the yen at 109.51 yen. The euro traded little changed at $1.4918. Sterling fell to its lowest in almost two years against the dollar after the Bank of England signalled it could cut interest rates sooner rather than later, a drop which set the stage for a broad dollar rally. It was down 1 percent on the day at $1.8770, having fallen as low as $1.8737, its lowest in 22 months.

On August 14, the dollar rallied to an almost six-month high against the euro amid growing concern over euro zone economic weakness and accelerating inflation in the United States.

According to the Rueters daily foreign currency report, the euro was 0.8 percent lower at $1.4807 in New York trading, after falling as low as $1.4779, the lowest since late February. The European currency is now more than 10 cents below a record high of $1.6038 struck in July. The dollar was 0.1 percent higher at 109.61 yen. The pound was up 0.1 per cent to $1.8721 in London, having earlier fallen to $1.8620, its lowest since October 2006.

At the close of the week on August 15, the euro slumped to a six-month low of $1.4750, before trimming some losses to $1.4781 down 0.2 per cent from late US trade. It was up 0.5 percent at 110.24 yen near a seven-month high hit earlier in the week.

The pound was down 0.3 per cent on the day at $1.8625, having traded as low as $1.8514 earlier in the day, a low not seen since July 2006. Sterling is down six per cent against the dollar so far this month, on track for its steepest monthly fall since January 1997.