The rupee/dollar parity continued to show strength during the week. Activities remained dull in the market ahead of elections in the country. In the inter-bank market, the rupee traded in a narrow range.

Slight increase in dollar demand by foreign banks on October 7 exerted pressure on rupee which shed 2 paisa over the previous week close to trade at Rs59.12 and Rs59.14. However, steady aid inflows and sufficient dollar supplies by the Pakistani workers abroad, restricted further decline in rupee, which gained 4 paisa against the dollar on October 9, trading at Rs59.08 and Rs59.10. October 10 was a closed holiday on account of the elections.

At the close of the week on October 11, the rupee was trading at Rs59.09 and Rs59.11, down one paisa from the overnight close.

In kerb, the rupee/dollar parity continued unchanged at Rs58.95 and Rs59.05 throughout the week as demand and supply of dollar remained in balance. Rupee in the kerb was 14 paisa lower than in the inter-bank market. Euro also continued unchanged at Rs57.75 and Rs58.05 against the rupee during the week.

Against other currencies at the inter-bank forex counter, rupee during the week lost ground versus the Canadian, Australian and the New Zealand dollars, the Swiss franc, the Swedish krona, the Norwegian and Danish krones and the Kuwaiti dinars. It, however, gained ground against the British pound, the Japanese yen and the Singapore dollars, while it continued unchanged against the Saudi and Qatari riyals, the UAE dirham, the Chinese yuan, the Malaysian ringgit and the Hong Kong dollar.

In the international financial market, the yen slipped to a near two-week low against the dollar on October 7, as the spectre of painful reforms affecting weak banks and ailing borrowers raised fears of more corporate bankruptcies, knocking down the Japanese share prices. The Nikkei share average crumbled to a fresh 19-year low shedding as much as 4.18 per cent at one point, after the Financial Services Minister said no Japanese mega-bank was “too big to fail”.

The dollar rose as high as 123.80 yen - its highest level since September 24 - from the last week’s US level of 123.19/27 yen. It stood at 123.72/75 yen. Some dealers said option-related selling at 124 yen was holding back the greenback’s advance. Still, bulls think the dollar could soon test its recent peak of 124.23, through that level could take it beyond 125 yen. The euro was calm at 97.86/91 cents little changed from 97.91/96 in the late US trade. Sterling rose to three-year highs against the yen, re-tested two-month highs against the euro and hit its highest level on a trade-weighted basis since late April in the early trade. But it slipped on news that the manufacturing output failed to grow in August and was down over a quarter per cent at 62.75 pence per euro by late London trade. The pound was steady against the dollar at $1.5650.

On October 8, the yen stayed under pressure haunted by the worries that the radical banking reforms in Japan could trigger a rash of bankruptcies but the follow-up sales were limited as the dollar had its own problems. The greenback edged down from the day’s high against the yen as the Japanese unit found support after enough bidders were found in an auction of the 20-year Japanese government bonds (JGBs).

The greenback was quoted at 124.03/08 yen against the late New York level of 124.17/25 yen. The dollar hit a high of 124.45 yen on October 7, the highest since mid-June, as the yen came under fresh selling pressure on the comments that no bank was too big to fail. The euro was little changed at 98.32/37 cents compared with 98.33/38 in the late New York. The single unit inched down to 121.92/2.00 yen after hitting a fresh three-year high of 122.38 yen earlier in Tokyo trade. It was at 122.17 yen in the late US trade.

Sterling tracked the euro lower against the dollar with little domestic data to give direction ahead of the Bank of England’s interest rate decision. The dollar gained across the board after the major US stock indices climbed one per cent at the open, knocking the pound half a per cent to $1.5570.

The pound was steady at 62.76 pence per euro, having failed to break through the key resistance at 62.37 pence. But the pound, which hit a five-month high on a trade-weighted basis a day earlier, turned tail after data later in the session showed the British manufacturing output unexpectedly stalled last month. A sharp slide in the Wall Street stocks, an unexpected gain in the German industrial output and anxiety over the Middle East caused the dollar to fall about one per cent against the major European currencies and the yen on October 9. But analysts noted that the US currency was still within recent ranges and said they do not expect the dollar to fall sharply against the euro or the yen any time soon in view of the continued weakness in the European and the Japanese economies.

The dollar fell 1.2 per cent against the euro, trading at 99 cents per euro, compared with 97.84 cents at the previous day’s New York close. The euro earlier set a 4-1/2 week high against the dollar at 99.12 cents. Against the yen, the US currency was at 123.26 yen, off 0.88 per cent from the previous session’s 124.35 yen.

Sterling fell half a per cent to two-week lows against the broadly stronger euro as the single currency got a boost from better-than-expected German industrial output data for August. The pound weakened early in the session in trade driven by technical factors and the residual pessimism over the poor UK manufacturing numbers earlier this week. Sterling’s losses accelerated as the German data and slumping the Wall Street futures sent the euro higher against the dollar.

The pound had dipped to a two-week low of 63.36 pence per euro, but was a touch higher against the dollar at $1.5555. Sterling started the week near three-week highs around 62.45 pence per euro after a rally last week on the back of a robust house price and the consumer credit data that highlighted the resilience of the Britain’s economy.

On October 10, the euro pulled back from the previous day’s 3-year high versus the yen and one month high against the dollar after the European Central Bank, as expected, held interest rates steady. In the late trading, the euro traded at 98.59 cents, off 0.35 per cent from the previous day’s New York close. The dollar edged up 0.22 per cent against the yen to 123.59 yen.

Sterling edged lower against the dollar following the pattern of other European currencies and showing little reaction to the Bank of England’s decision to leave the interest rates unchanged as expected. Sterling lost around a fifth of a cent against the dollar immediately after the rate decision, as the last minute market speculation of a growth-boosting rate cut turned to disappointment when the BoE left rates steady.

The sterling was train near the bottom end of the day’s half-cent trading range at $1.54645/47 but was well above two-week lows close to $1.55 hit on October 9. The pound made minor gains against the euro, strengthening to 63.16/20 pence, compared with the two-week lows of 63.43 pence set a day earlier. At the close of the week on October 11, the yen sagged versus the dollar and the euro as the market braced for a Bank of Japan report on the Japanese banks’ bad loans that could trigger tougher action against banks. The dollar was quoted at 123.99/02 yen up a touch from its late US level of 123.68/70. The euro edged up to 122.36/47 yen from 121.86/97 yen and near its three-year peak of 122.48 set on October 10. The euro was also slightly firmer versus the dollar at 98.70/75 cents from the late US level of 98.50/55.

The sterling ended the week lower versus the dollar and the euro, losing some of its recent hefty gains, but stole a march on the troubled yen as the market focus entered on concern about the Japan’s banking sector. The pound rose to a three-year peak of 194.99 yen this week as the pessimism mounted about the devastating effects on the world’s second biggest economy from its expected banking reform plan.