The country’s macroeconomic indicators continue to be weak. Pakistan is in dire need of financial support to the tune of $10 billion to finance worsening balance of payment deficit, honour debt repayments, build up forex reserves and reverse capital outflows.

Due to negative economic indicators, foreign investment has halted. Foreign investors have reportedly repatriated large chunk of profit and dividend outside the country. Even domestic investors are reluctant in making new investment. A large portion of capital has found its way outside the country.

At the same time, government borrowings for budgetary support from the banking system have sharply risen, while foreign exchange reserves have fallen below $7 billion. As a result, the rupee is also under tremendous pressure. Its value in relation to dollar has eroded sharply over the past 11 months. In recent weeks however, the rupee has managed to resist free fall due to various measures taken by the State Bank of Pakistan. Since January this year, the rupee has so far depreciated by about 23.5 per cent against the dollar.

The rupee resisted sharp declines versus the dollar in the local currency market this week. Modest erosion in the rupee value continued against the dollar. In the inter bank market, the rupee commenced the week on a negative note, as it lost 10 paisa against dollar, which traded at Rs81.60 and Rs81.65 on October 27due to stronger demand. The dollar had closed last week at Rs81.50 and Rs81.55. No change was observed in the rupee/dollar parity amid dull trading on October 28. The rupee on October 29 suffered marginal fall of 5 paisa with dollar trading at Rs81.65 and Rs81.70.

Calm prevailed in the inter bank market on October 30, as there was no rush for dollar buying. However, the parity remained in the negative territory, with the rupee falling slightly by five paisa against the dollar, which was seen changing hands at Rs81.70 and Rs81.75 as strong dollar demand by banks persisted. The rupee displayed strength over the dollar on October 31, as it managed gain 15 paisa on the buying counter and another 20 paisa on the selling counter, changing hands at Rs81.45 and Rs81.55. Against the dollar, the rupee in the interbank market managed to gain five paisa on buying while retaining last weekend rate for selling this week.

In the open market, the rupee managed to retain its previous weekend level against the dollar on the buying counter but lost 30 paisa on the selling counter, trading at Rs82.70 and Rs83.50 on the opening day of the week.

It further shed 30 paisa in relation to dollar for buying but remained unchanged on the selling counter, changing hands at Rs83.00 and Rs83.50 on the second trading day of the week in review. The rupee further weakened on the third trading day, posting fresh losses of 50 paisa for buying and 100 paisa for selling at Rs83.50 and Rs 84.50.

On the fourth trading day however, the rupee managed to show firmness against the American currency, gaining 20 paisa on the buying counter and another 50 paisa on the selling counter to trade at Rs83.30 and Rs84.00 against the dollar. The rupee further extended its overnight gains on October 31, recovering 45 paisa on buying and 70 paisa on selling to close the week at Rs82.85 and Rs83.30, bringing cumulative losses versus the dollar in the open market this week to 20 paisa.

Versus the European single common currency, the rupee rebounded sharply on the opening day of the week in review, recovering Rs1.35 on the buying counter and Rs 1.55 on the selling counter to trade at Rs103.15 and Rs104.15 on October 27 against last weekend’s Rs105.50 and Rs105.70. On October 28, however, the rupee failed to hold its overnight firmness, as it depreciated by 135 paisa to trade at Rs104.50 and Rs105.50 on the second trading day.

The rupee weakening trend persisted on October 29, when the rupee suffered sharp losses in single day trading. It shed 360 paisa on the buying counter and 280 paisa on the selling counter, changing hands at Rs108.10 and Rs108.30.

The rupee further lost Rs1.20 on October 30, when the euro was seen trading at Rs109.30 and Rs109.40. Finally on October 31, the rupee appreciated sharply against euro, gaining Rs3.95 on the buying counter and Rs4.05 on the selling counter to trade at Rs105.35 and Rs106.35. However during the week in review, the rupee on cumulative basis shed Rs2.20 against the European single common currency.

In the international financial markets, the dollar and yen advanced on the opening day of the week as fears of global recession prompted investors to abandon risky assets, boosting both currencies that were sold to finance these investments. The yen hovered near 13-year peaks against the dollar. The dollar climbed to its strongest level against the single euro zone currency in about 2-1/2 years. In New York, the dollar was hovering around 94.00 yen. The US currency had slid to a 13-year low of 90.95 at the end of last week.

The euro was also a little firmer at around $1.2544. Earlier, it fell to a 2-1/2-year low at $1.2335. The pound fell sharply hit by ongoing risk aversion as investors worried about the spectre of a global recession, with the UK seen as particularly exposed to a prolonged economic downturn. Recession fear sparked further unwinding of riskier positions in all asset classes, with European shares tumbling more than five percent at one point. It was down three per cent against the dollar at $1.5448, but was off session lows at around $1.5280 and above a six-year low of $1.5265 hit last weekend.

On October 28, the yen slumped across the board, recording its worst one-day decline against the euro. The Japanese currency also posted its biggest daily fall versus the US dollar since 1974.

In New York, the dollar jumped 5.4 per cent to 97.75 yen, moving away from a 13-year low just above 90 yen struck last weekend. The euro also rose two per cent to $1.2715 after hitting a 2-1/2-year low earlier. Sterling was up 0.5 per cent at $1.5620, after rising more than one percent earlier in the session. But it still held above a six-year low of $1.5265 last week.

On October 29, the US dollar posted its biggest one-day fall in 23 years with the Federal Reserve delivering an interest-rate cut, easing investor concern about the world economy and reducing the need to repatriate dollars from riskier markets. In New York, the euro was up 1.9 percent against the US dollar at $1.2953. The US dollar was down 1.5 per cent against the yen at 97.26 yen, having gained more than six per cent on October 28, its biggest one-day rise in 34 years. Sterling was up over 2.5 per cent on the day at $1.6315, far above a six-year low of $1.5265 hit last week.

On October 30, the US dollar rose against the yen but was little changed against the euro, after gains in world stock markets and an interest rate cut by the Federal Reserve helped ease the recent flight into the dollar. The dollar climbed 1.2 per cent against the yen to 98.60 yen, extending its recovery from a 13-year trough just below 91 yen touched last week, while euro was down 0.2 per cent at $1.2930, but well above a 2-1/2-year low of $1.2329 hit this week. The pound fell 0.8 per cent to $1.6279, although it stayed above the six-year low of $1.5265 hit late last week. Earlier in the day, sterling rose as high as $1.6671, its strongest in more than a week, as an early rise in share prices revived some demand for higher-yielding currencies.

At the close of the week on October 31, the yen rose against the dollar and euro as a drop in Tokyo share prices renewed investor concern over riskier assets. The dollar fell 1.2 per cent against the yen to 97.38 yen after rising to a high of 99.13 yen. The US dollar dropped more than 8 percent against the yen this month, the biggest slide since 1998. The euro fell 1.4 per cent at $1.2740, down sharply from a high of $1.3300 on October 30. Sterling fell against a broadly stronger dollar, with heightened risk aversion roiling share markets, while data showed the global financial crisis weighing heavily on British consumer morale. The pound was down around one per cent versus the dollar at $1.6185.