In the local currency market, the rupee continued to remain under pressure versus the American and European currencies due to political instability and weak economic fundamentals.

As presidential election drawing near, political uncertainty is seen increasing. Shrinking foreign exchange reserves position and rising political uncertainty have weakened the rupee in the past six months. Strong demand by the importers in the absence of easy supply of dollars did not allow the rupee to hold its weekend levels of Rs75.90 and Rs76 on the opening day of the week. The rupee lost 70 paisa against the US currency in the inter-bank market, changing hands at Rs76.60 and Rs76.70.

However, modest recovery in rupee value in relation to dollar was observed on August 26, when the rupee gained 10 paisa on buying counter and five paisa on selling counter to trade at Rs76.50 and Rs76.55. On August 27, the rupee managed to hold its overnight firmness, extending further gains on easy dollar supplies. It sharply recovered 35 paisa and traded at Rs76.15 and Rs76.20 against the dollar.

The rupee firmness persisted on August 28, when it posted fresh gains of 25 paisa, trading against the dollar at Rs75.90 and Rs75.95. However, after displaying firm trend against the dollar for two successive days, the rupee again assumed a declining trend on August 29, when it shed 30 paisa as a result of importers’ demand for dollars and traded at Rs76.20 and Rs76.25. During the week in review, the rupee in the inter-bank market lost 30 paisa on the buying counter and 25 paisa on the selling counter on cumulative basis against the dollar.

In the open market, the week commenced on negative sentiments as the rupee suffered a decline against the dollar, losing 70 paisa for buying and 20 paisa for selling to trade at Rs76.20 and Rs76.70 on the first day of trading after having closed previous week at Rs75.50 and Rs76.50. The downtrend in the rupee/dollar parity persisted on the second trading day. The rupee posted another 30 paisa decline versus the dollar on August 26, when the dollar was seen trading at Rs76.50 and Rs77.00.

On August 27, the rupee, however, managed to recover some of its overnight losses versus dollar and gained 45 paisa on buying and 70 paisa on selling there by changing hands at Rs76.05 and Rs76.30. The rupee, after falling for two successive days, managed to retain its strength over US dollar on August 28 by gaining 55 paisa and changing hands at Rs75.50 and Rs75.80. But the recovery proved short lived as the dollar rebound on August 29, gaining 20 paisa on buying and 25 paisa on selling to close the day at Rs75.70 and Rs76.05, bringing cumulative loss in the week to 20 paisa on the buying counter, while recovering 45 paisa on the selling counter.

Versus the European single common currency, the rupee weakness persisted in the local market on the first trading day, shedding further 110 paisa on buying and another 145 paisa on selling to trade at Rs111.60 and Rs111.75 on August 25 after having closed last week at Rs110.15 and Rs110.30. The down slide continued in rupee value against the euro on August 26, with the rupee posting fresh losses to the tune of 25 paisa to trade at Rs111.85 and Rs112.00.

On August 27, the rupee was unable to come out of its shrinking spell. It further lost 60 paisa in relation to euro, changing hands at Rs111.25 and Rs111.40. However, it managed to rebound on August 28, recovering 30 paisa on its overnight levels to trade at Rs110.95 and Rs111.10 before posting five paisa decline on August 29, when euro traded at Rs111 and Rs111.15.This week, the rupee lost 85 paisa against the European single common currency, amid fluctuations.

Pressured by sharp losses in the US equities market as nagging credit worries prompted investors to trim risky trades, the dollar dropped against the yen in the international financial market on the opening day of the week. However, it gained versus the euro and at one point rose to a two-year high against the pound, backed by a predominant view that declining growth in the euro zone and Britain could force their central banks to cut benchmark interest rates. In a session thinned by a UK public holiday, investors focused on US equities, which fell sharply, led by financial stocks.

A steep fall in Lehman Brothers shares spooked currency investors and fuelled a sell-off in the dollar against the yen and Swiss franc, two low-yielding currencies that gain a bid in times of financial stress. The fall in dollar/yen is all on the back of US equities. In late New York trading, the dollar fell 0.6 per cent to 109.34 yen on August 25. Intraday gains in the dollar on better-than-expected US existing home sales were short-lived even though a recovery in the US housing market is seen as critical to easing some of the concern on the US economy.

Against the Swiss franc, the dollar slid 0.3 per cent to 1.0960 francs. The euro also fell versus the dollar, down 0.3 per cent at $1.4749. The British pound hit two-year lows against a broadly stronger dollar with stalled UK economic activity seen as another example of growing economic malaise outside the United States. The UK currency has fallen about 6.6 per cent on the month. It was trading down 0.2 per cent on the day at $1.8482, having fallen as low as $1.8407 in the global session - its lowest since July 2006, according to Reuters data.

On August 26, the dollar climbed to six-month highs against the euro, boosted by a jump in US consumer confidence and expectations of euro-zone interest rate cuts as investors braced for a possible recession in the region. The euro tumbled versus the dollar earlier following a barrage of euro zone data suggesting economic weakness has spread beyond the United States. It was down 0.7 per cent at $1.4642 after falling to a low of $1.4570 following the Ifo data, its weakest since mid-February. It was also down more than six per cent so far this month and looks set for its largest monthly fall since its 1999 launch.

The dollar fell 0.7 per cent against the yen to 108.81 yen. Sterling sank to a two-year low against the dollar after a surprisingly weak reading of German business confidence bolstered the view that Europe, including the UK, is increasingly in deep economic trouble. Sterling was down 0.7 per cent on the day against the dollar at $1.8400, having earlier traded as low as $1.8331, a level not seen since July, 2006.

On August 27, the euro was up 0.5 per cent on the day at $1.4725, rallying from six-month lows at $1.4570 hit a day earlier. The dollar was little changed versus the yen, but had an upward bias for most of the session, buoyed by gains in the US stock market after data showed an unexpected rise in new orders for long-lasting US manufactured goods. It last traded at 109.59 yen. Sterling traded 0.3 per cent higher at $1.8443 after climbing as high as $1.8488. Sterling has dropped from $2.0153 hit just over a month ago, and is on track to clock its worst monthly performance against the dollar since 1992.

On August 28, the euro was down 0.1 per cent on the day at $1.4702, well off the session peak at $1.4811. Against the yen, the dollar was last at 109.46 yen, little changed on the day but well above the session low of 108.79. Sterling was down 0.3 percent against the dollar at $1.8293 after briefly touching a new two-year low at $1.8242. The pound fell after a measure of British house prices showed the biggest annual price fall for 17 years while retail sales posted the steepest drop since records began a quarter of a century ago, indicating an increasingly fragile economy.

At the close of the week on August 29, the dollar eased 0.4 per cent from late US trading to 109.07 yen The euro climbed 0.3 per cent to $1.4744. However, the greenback is still poised to show gains of 5.5 per cent against the euro this month, its biggest gain against the euro since the single currency was launched in 1999. Since late July, the dollar has benefited from growing signs that economic weakness has spread beyond the United States. Sterling rose 0.2 per cent to $1.8315 amid the dollar’s broad decline. Sterling has shed nearly eight per cent against the dollar this month and is on track for its worst monthly performance since October 1992.