In the local currency market, the rupee displayed strong sentiments versus the American and European currencies this week. Trading in currencies improved slightly after IMF approved $7.6 billion loan to help the government avert balance of payment and foreign exchange crisis, thereby saving the country from defaulting on international debt obligations.

The agreement had a positive impact on the rupee. Much of the pressure on the rupee was relieved after IMF released first tranche of $3.1 billion last week.

The country’s fast depleting foreign exchange reserves also showed significant improvement this week, which now stood at $9 billion as against $6.5 billion last week. The country’s overall foreign reserves had stood at historical level of $16.4 billion in first week of November 2007. However, rising current account deficit, capital outflows, declining foreign investment and high oil payments due to the high oil prices had reduced foreign exchange reserves over the past 12 months to $6 billion by end November 2008. Currency analysts hope further improvement in rupee/dollar parity in coming weeks. The rupee has appreciated by about 2.1 per cent since October this year. The rupee was at its historic lows against the dollar (Rs80.43) in October.

Meanwhile, the inter-bank market commenced the week on a positive note, as improved dollar supplies helped the rupee retain its last week firmness against the American dollar on the opening day of the week in review. The rupee further posted fresh gains of five paisa over the previous week close of Rs78.80 and Rs 78.85, trading against the dollar at Rs78.75 and Rs78.80 on December 1.

On December 2, the rupee/dollar parity maintained its steadier trend due to easy dollar inflows. The dollar lost five paisa against the rupee for the second consecutive day, changing hands at Rs78.70 and Rs78.75.

Upward rising trend in the rupee/dollar parity persisted on the third trading day on December 3. The rupee further recovered against the dollar, gaining 10 paisa on the buying counter and another five paisa on the selling counter to trade at Rs78.60 and Rs78.70. However on December 4, the rupee was unable to hold its firmness versus the dollar, which traded at Rs78.70 and Rs78.75. The rupee lost 10 paisa for buying and 5 paisa for selling due to strong demand for dollar during the day. The rupee continued its decline against dollar for the second consecutive day on December 5, shedding 10 paisa to trade at Rs78.80 and Rs78.85 on mounting demand for dollar. At this level, however, the rupee/dollar parity in the inter-bank market did not show any change over the previous week close.

In the open market, the rupee stood firm against the dollar on the opening day of the week. It gained 20 paisa against dollar on the buying counter but remained unchanged on the selling counter, trading at Rs 77.80 and Rs78.30 on December 1, against previous week close of Rs78.00 and Rs78.30. The trend persisted on the second day, with the rupee making further gain of 10 paisa against the dollar on the buying counter, while remaining unchanged on the selling counter for the second day in a row. At the close of the day, the dollar was trading at Rs77.70 and Rs78.30.

On the third trading day, however, the rupee was unable to retain its firmness against the dollar due to sudden rise in dollar demand. As a result, the rupee lost 30 paisa on the buying counter and 20 paisa on the selling counter, with dollar changing hands at Rs78.00 and Rs78.50 on December 3. But, the dollar overnight strength over the rupee proved short lived as the rupee managed to rebound against the dollar, gaining 20 paisa to trade at Rs77.80 and Rs78.30 on the fourth trading day.

Finally on December 5, the rupee again rebounded against the dollar, as it managed to recover 10 paisa, changing hands at Rs77.70 and Rs78.20 to a dollar at the close of the day. This week, the rupee in the open market displayed positive sentiment versus the dollar, gaining 30 paisa on the buying counter and 10 paisa on the selling counter.

Versus the European single common currency, the rupee maintained its previous weekend firmness and traded at Rs97.60 and Rs98.00 on the opening day of the week in review after gaining 20 paisa on the buying counter and 80 paisa on the selling counter against last week close of Rs97.80 and Rs98.80. The rupee moved both ways on the second trading day as it further extended gains recovering 50 paisa more against the euro on the buying counter but shedding 30 paisa on the selling counter, changing hand at Rs 97.30 and Rs98.30 on December 2.

On December 3, the rupee managed to further recover 30 paisa against euro which traded at Rs97.00 and Rs 98.00. It, however, shed 10 paisa on December 4, when euro traded at Rs97.10 and Rs98.10. On December 5, the rupee further extended its losses against the euro, sharply shedding 135 paisa in single day trading to trade Rs98.45 and Rs99.45. During the week in review, the rupee lost 65 paisa on cumulative basis against the European single common currency.

On the international front, the US dollar and the yen rose on the opening day of the week, benefiting from safe-haven flows after weak economic data heightened fears about a deep economic slowdown around the world. The yen was broadly higher, reaching a one-month high versus the dollar as plunging equity prices prompted investors to reverse risky trades. In late trading in New York, the dollar was down 2.4 per cent against the yen at 93.18 yen, after hitting a low of 93.06 yen earlier, the weakest level since October 28. The euro fell 0.6 per cent to $1.2619. Sterling was off 3.4 per cent against the dollar at $1.4870.

On December 2, the dollar and the yen fell against the euro as a stock market rebound reduced demand for safe havens. In late trading in New York, the euro rose 0.7 per cent against the dollar to $1.2714 and gained 0.9 percent versus the yen to 118.66. The dollar was up 0.2 per cent against the yen at 93.34. It fell as low as 92.64 yen earlier, the lowest since October 28. The Australian dollar rose 0.8 percent versus the greenback to $0.6451Sterling rose 0.2 per cent to $1.4905 despite the view that the Bank of England will slash rates by as much as 100 basis points, one month after chopping them by 150 basis points, to 3.0 per cent.

On December 3, the dollar and the yen traded little changed against major currencies paring earlier gains after stocks staged a late rally on Wall Street. The euro and the British pound came under pressure through most of the session ahead of interest rate decisions by central banks in the euro zone and Britain. The dollar was little changed at 93.34 yen after earlier touching 92.55 yen, a five-week low. The euro was also flat against the yen at 118.60.

The New Zealand dollar showed a limited reaction after the country’s central bank cut interest rates by a record 150 basis points to five per cent. The move was widely expected. Sterling fell broadly after data showed that the UK services sector shrank faster than expected in November. It was last down 0.9 per cent against the dollar at 1.4773. The European Central Bank is seen cutting rates this week by at least 50 basis points to 2.75 per cent, but many economists are expecting a 75 basis point cut.

On December 4, the US dollar fell against the euro as some investors lauded the European Central Bank’s bolder-than-expected interest rate cut as a proactive step to stave off a deep recession in the 15-nation region. In late trading in New York, the euro was up 0.5 per cent against the dollar at $1.2771, more than two cents from the session low of 1.2550. The pound was down 0.8 per cent at $1.4651, having earlier touched a more than 6 year low of $1.4471. The dollar last down 1.2 percent at 92.26 yen.

At the close of the week on December 5, the euro was nearly flat at $1.2780 in Tokyo. It earlier fell as low as $1.2732 from late New York trade on December 4.

The dollar climbed 0.1 per cent to 92.32 yen, after hitting its lowest point in five weeks at 92.05 yen on EBS in US trading.

In London, the pound was down 0.8 per cent on the day at $1.4565 after hitting a 6-3/4 year low of $1.4467 a day earlier.