Slow activity persisted in the currency market amid uncertainty over the US military action in Iraq. In the early week there was a slight increase in the dollar demand in inter-bank market on modest business, but towards the end of the week the pressure on rupee subsided in the absence of major demand for dollar. However, investors were seen active in euro business which remained volatile throughout the week in the kerb.

In the inter-bank market, the week commence on a dismal note with the rupee shedding 4 paisa on slight improvement in dollar demand on February 24 to trade at Rs58.12 and Rs58.14. Several banks were seen engaged in buying the dollar to cover their immediate needs during the day. The central bank was also active in extending support to the dollar. The parity however, remained almost unchanged in the following two days. On February 26, the dollar was trading at Rs58.11 and Rs58.14. The rupee failed to maintain its firmness on February 27, when it shed another 2 paisa amid modest business to trade at Rs58.13 and Rs58.15 versus the dollar on February 28, the rupee dollar parity was Rs58.00 and Rs58.05 for buying and selling respectively.

By the close of the week the rupee in the inter-bank market had recovered 3 paisa against the dollar, for buying and selling at Rs58.10 and Rs58.12, respectively. A similar trend was witnessed in the kerb where the rupee shed 10 paisa during the first two days of trading amid modest business. On February 25, the dollar was trading at Rs58.0 and Rs58.05 against the previous weekend close of Rs57.90 and Rs57.95. On February 26, the rupee gained 5 paisa in the absence of any major demand to trade at Rs57.95 and Rs58.0. The rupee gained 2 paisa on February 27, as war fear forced people to hold their dollar stocks.

Versus the euro, the domestic currency, however, gained 20 paisa for buying and selling at Rs62.30 and Rs62.60 amid modest activity.

Investors in the kerb were seen active in euro business. As a result rupee-euro parity remained volatile. In the first four days of trading rupee shed 25 paisa against the euro amid fluctuations. Euro was trading at Rs62.15 and Rs62.45 on February 24. It went up as high as Rs62.60 and Rs62.90 on February 25 before assuming a downtrend in the following two days. The euro was quoted at Rs62.30 and Rs62.60 on February 26 and at Rs62.50 and Rs62.80 on February 27.

In the international financial market, the yen soared to its highest levels in a month on February 24 on expectations the newly nominated Bank of Japan governor would not promote aggressive deflation-fighting steps that would weaken the yen. The dollar, meanwhile, slipped against the euro and fell even further against the Swiss franc as the international diplomatic fracas over Iraq intensified.

The yen rose as high as 117.60 per dollar, its highest in nearly as month. In New York, it was trading at 117.85 per dollar, a rise of six-tenths of a per cent on the day. The yen also rallied versus the euro to one-month highs of 126.26 per euro. It was trading at 127.19 in late New York dealings. The dollar fell about a quarter per cent against the euro and nearly three-quarters of a per cent against the Swiss franc as members of the United Nation’s Security Council showed no signs of moving closer together on Iraq. In late US trade, the dollar was at $1.0789 per euro and 1.3562 Swiss francs.

Sterling crept up from last week’s four-year lows against the euro taking advantage of poor sentiment toward the single currency in the wake of bleak growth forecasts from the euro-zone’s central bank. Investors, recently spooked by growing concerns over Britain’s economic health, saw the prospect that the vast common monetary policy zone might perform worse than expected along Britain. It traded at 67.96 pence per euro, up 0.22 per cent and stronger than the four-year low of 68.29 pence struck last weekend. It was up also on the dollar at $1.5816, rebounding from a two-month low on the greenback hit earlier in the session.

On February 25, the yen rallied to its highest level against the dollar in nearly six months after Japan’s finance minister said currency rates should be left to market forces. The yen rose as high as 117 per dollar, its highest level since early September 2002.

By late afternoon in New York, the dollar was trading at 117.26 yen, a half per cent decline on the session. Euro/yen was off 0.90 percent at 126.12 yen near session lows of 126.06. The euro’s sharp fall against the yen also helped to take it down a notch versus the dollar. The euro was at $1.0757 in late US dealings down 0.36 per cent on the session. The dollar was up 0.18 per cent versus the Swiss franc to 1.3574 francs.

Sterling sank to a four-year low versus the euro and hit its lowest level in two months on the dollar for the third session running, after top Bank of England officials warned new declines may be in store. The pound hit its lowest level since February 1999 at 68.63 pence per euro, shedding 0.8 per cent of its value. Its lowest level versus the dollar was $1.5731, a two-month low and a loss of 0.8 per cent on the day. Analysts said there was little on the horizon to support the pound.

On February 26, the dollar edged lower as traders kept one eye on the Bank of Japan and another on developments in Iraq, but trade was thin and most currencies stayed within well-defined ranges. Concerns about stealth Bank of Japan intervention kept dealers dancing around 117 yen, the level that has been pinpointed as an area of buying interest that many speculate could reflect the official hand of Japan.

The yen has been rising over the past several days, supported by repatriation by Japanese corporate ahead of the fiscal year end on March 31 and by expectations that Japan’s newly nominated bank of Japan governor would not support such yen-depressing policies as inflation-targeting and aggressive buying of foreign bonds as a way to fight the country’s persistent deflation. In late trading in New York, the dollar was at 117.08 yen, down 0.15 per cent in the session. The dollar lost about two-tenths of a per cent to both the euro and the Swiss franc, trading at $1.0782 per euro and 1.3554 francs.

Sterling steadied just above the previous day’s four-year low on the euro and two-month trough on the dollar as investors paused to assess how much bad news is priced in following a major sell-off this week.

The correlation between euro/dollar and cable (sterling/ dollar) has turned negative in recent weeks because of a downgraded view of the UK economy on a relative basis and the fact that investors are more averse to holding sterling than euros because of the UK’s close involvement with the US in confronting Iraq. Sterling bounced to 68.13 pence per euro having fallen as far as 68.63 on February 25. Against the dollar it rose to $1.5794 from the previous session’s low of $1.5700. The dollar, in part helped by its gains against the yen, traded with a firmer bias against the euro and the Swiss franc. Against the yen, sterling edged away from its five-month low to stand at 185.22 yen.

The dollar fell to its lowest in nearly six months versus the yen in Asia on February 27, as fears of a US-led war against Iraq outweighed threats of Japanese intervention to stop the yen’s rise. But a tug-of-war between Japanese authorities and dollar bears looks set to continues, with many traders seeing Tokyo as desperate to stem the yen’s export-crippling gains.

The dollar briefly fell to 116.90 yen in late afternoon trade, compared with late New York level of 117.05/13 and February 27 a low of 117.00 on February 25. The dollar had crept back to 117.02/04 in choppy trade.

Sterling slid back towards recent lows against the euro and the dollar on February 27, hurt by the gloomy UK consumer confidence data and comments by a Monetary Policy Committee member that British interest rates could fall further. The pound, which hit a four-year low on the euro and a two-month low on the dollar earlier this week, dipped in early trade. Sterling was down a quarter percent at $1.5780 in late London trade, less than a cent from February 25th two-month low.