Since the 9/11 events that took place in 2001, and that America will never forget, Pakistan has seen some very positive developments on the political, as well as on economic fronts.

The economy now seems much stronger than it was in 2001. In fact most economists in 2001 were of the view that the country was heading for bankruptcy.

The scenario has totally changed. It has sufficient reserves now. The balance of payments on current account is in surplus. Economic growth has also improved. Both exports and imports are gaining momentum with the revival of economic activities.

The Pakistani rupee has become stronger against the dollar. The rupee, which was trading against the dollar at Rs64.06 in the interbank market and at Rs67.07 in the open market has since than appreciated by 12 and 17 per cent, respectively.

The rupee, however, stayed under slight pressure last month against the leading currencies despite smooth supply of the US dollar. The 12-nation European currency surged to new highs in the local currency markets.

The appreciation of euro in global financial markets was also mirrored in local markets as the single European currency breached the Rs73 barrier while the British pound crossed Rs104 mark for the first time.

The rupee-dollar parity also remained under pressure, as the banks' demand for the US dollar is still high both in kerb and the inter-bank markets. The government has decided to retire nearly one billion dollars Asian Development Bank loans in early February, which generated demand for the US dollar in local markets.

Analysts say that the heavy payments by the government during the current month and a slight fall in remittances from the overseas Pakistanis are the chief reasons behind the rupee's decline against the greenback in recent times.

The local currency will stay under pressure against the US dollar for next couple of weeks despite smooth supply of greenback in the market, they say. However, they say Pakistani rupee will stay firm and stable in the long run as the impact of emerging positive developments on the political fronts would definitely appear on economic front.

At present the dollar is trading in a weak zone on the international desks and therefore, the rupee is likely to stay firm versus the US dollar in the days to come. However, the local unit is expected to lose more grounds against the euro and sterling amid their continued hike against the US dollar in the world markets.

Last week the market remained closed on account of the Eid holidays. It, however, opened this week on a negative note, losing 8 paisas in the inter bank market and only 2 paisas in the open market to trade at Rs57.43 and Rs57.35 against the green back, respectively.

The rupee, however, gained 27 paisas versus the euro in two days trading this week. As it was expected, euro lost grounds in the international markets, which supported the national currency to show some recovery on the desks. At the close of the week the rupee was changing hands at Rs72.06 against the euro.

There was major demand for currencies from the buyers after the inter bank market resumed trading after a long weekend. However no significant selling was recorded.

The session remained dull in the kerb since it was the first day after the Eid and the market remained slow through out the day as no major transaction were recorded. The active trading is expected to start from February 9.

The dollar is the world's dominant currency. Most currency analysts in the world are worried by its recent plunge against other currencies. But the American policymakers seem happy to let the dollar slide. Europeans, however, complain that the burden of adjustment has fallen disproportionately on their currency, the euro.

As the euro has soared against the dollar, central banks in Japan, China and other Asian countries have bought dollars to hold down the value of their own currencies.

By doing so, they financed over half of the America's current-account deficit in 2003. Without that money the dollar would have fallen further. The falling dollar isn't a problem for the US and shouldn't be stemmed by the Federal Reserve increasing interest rates, according to one analyst. Instead, rising non-dollar currencies that mirror a falling dollar is a foreign growth-stunting problem, and the problem that other G-7 nations should address with deflationary monetary policies. The other six members of the Group of Seven industrialized nations should fight gains in their currencies by cutting the interest rates.

The US is happy with the falling dollar and the US manufacturers are especially happy because it makes exports more competitive overseas and makes it tougher for foreign companies to sell their goods here potentially. And, so far, the dollar's steep drop has not upset financial markets - stocks are rallying, bond yields are low - because it has been "orderly."

Currencies continue to be a dominant issue given the weak dollar stance taken by the US. The best performing currencies, in Canadian dollar terms, were the euro, up 0.77 per cent; the British pound, up 1.7 per cent. The worst performing currency was the Norwegian kroner, down 1.6 per cent on a recent cut in the Norwegian interest rates. Market performance in Europe was off 70 basis points locally, but flat in terms of Canadian dollars because the euro has been gaining strength versus the Canadian dollar.

The UK and Sweden were among the poor performers. Most analysts are betting the G-7 will continue to talk about flexible exchange rates where the market determines the dollar's value.

Europe and Asia say they are hurting because their economies are very dependent on exports, which are more expensive now versus dollar-based exports. They would like a nod or a hint that G-7, including the US, would intervene if the dollar slides too fast. But the US is expected to stick to its story - the dollar will steady when Europe and Asia grow more. And that will take steps on their part to change domestic policies on labour, taxes, and pensions.

Since 2001 the dollar has fallen by 33 per cent against the euro and by 15 per cent against the Japanese yen. Many businessmen will be holding their breath as well.

The Asian markets traded lower following the Chinese New Year break on concerns over the spreading threat of bird flu. To date, there are as many as 10 Asian countries affected by the virus with deaths reported in Vietnam and Thailand. The outbreak is encouraging these markets to move into a phase of profit-taking after a very strong year and an especially strong fourth quarter in 2003.

This is understandable. Any shift in currencies produces winners and losers. And yet the real problem facing the world economy is not a suddenly weak dollar, but a dollar, which remains, even after its recent decline, too strong.

The drop in the greenback was inevitable and should benefit both America and other countries, because it will help to reduce America's vast current-account deficit, which is arguably one of the biggest threats to the global recovery. For the same reason the dollar should, and almost certainly will, fall further. But some countries are not prepared to allow the dollar to fall by enough to complete the necessary adjustment to America's finances.

The dollar reached one-week highs against the yen on February 6 as traders bought it back to reduce their exposure ahead of a Group of Seven meeting started later in the day. The dollar spiked to 106.25 yen in hectic trade, continuing an advance sparked by upbeat comments on the US economy by the Federal Reserve Board Governor.

The comments prompted short-covering by dollar bears who had sold it aggressively on the view that the G7 would not agree on any substantial move or statement to stem its long decline.

The dollar fell across the board on Friday after a weaker-than-expected US employment report for January raised doubts about the strength of the US economic recovery.

The soft jobs data reduced the odds the Federal Reserve will hike rates by mid-year as many had thought it would. Analysts say this will reinforce the dollar's long-term downtrend after the US central bank said last week that it can be "patient" about when to end its easy monetary policy.

The euro, which gained more than 20 per cent against the dollar during 2003, burst through the 1.25-dollar and 1.26-dollar marks for the very first time this week, reaching a new all-time best on February 4 of 1.2648. Investors fear that the surging European currency could make exports from the euro zone more expensive to foreign - particularly American - buyers, hitting economic recovery.

The euro was steady at $1.2535 in late New York, having shuttled in a narrow band throughout the session. Against the yen, the dollar was marginally weaker at 105.40 yen.