Currency market wore a dull look in the absence of any major development. The market lacked trading interest due to the persistent decline in dollar’s value. Due to uncertain world political and economic conditions since the 9/11 events, people mostly Pakistanis abroad, are considering their own country as the save-haven for their capital. Consequently, there have been large inflows of dollar since past few months that have resulted in excess dollar supply and brought dollar under selling pressure in the local market.

At present the market is flooded with the dollars. Leading currency leaders have lost interest in dollar trading and adopted wait-and-see policy. Some small investors are in the market to make small buying. Often some foreign and local banks come in the market to buy dollars to cover their payment requirements.

This week, local currency market depicts lack of trading interest, as inflows of remittances from Pakistani expatriates continue ahead of the Eid-ul-Fitr. In the inter-bank market, the rupee, however, lost ground versus the dollar, amid rising dollar demand from foreign banks on the opening day of the week on December 2. This helped the dollar to stage a recovery for a short span. The rupee lost 9 paisa over the previous weekend level and traded at Rs58.33 and Rs58.35. Banks continued to buy dollars on December 3, building reserves. The State Bank of Pakistan also supported the dollar from falling further.

Consequently the rupee lost another 2 paisa on December 3 to trade at Rs58.35 and Rs58.36. In kerb trading, the parity, however, breached Rs58 barrier with the rupee gaining 15 paisa on the opening day of the week on December 2. The rupee touched new lows at Rs57.90 for buying amid increased dollar supply. The dollar also lost 15 paisa to trade at Rs58.0 for selling. The dollar showed a stable trend thereafter and closed the week unchanged at Rs57.90 and Rs58.0 on December 3 ahead of long week-end. The market will remain closed for three days on account of Eid holidays starting from December 5.

Against other major currencies at the inter-bank forex counter, the rupee lost ground this week versus the British pound, the euro, the Swiss franc, the Danish and Norwegian krones and the Canadian dollar. It showed stable trend against the Saudi riyal and the Hong Kong dollar but gained ground over the Australian, New Zealand and Singapore dollars, the Japanese yen, the Chinese yuan, the Malaysian ringgit, the Swedish krona, the Kuwaiti dinar, the Qatari riyal and the UAE dirham.

In the international financial markets last week holiday-thinned markets allowed traders to voice confidence in the greenback’s near-term outlook. Coordinated attacks on Israeli tourists in Kenya — which included a suicide bombing on an Israeli-owned beachside resort in Mombassa and missile attacks on a plane full of vacationers from Israel - prompted dollar selling in markets rendered thin due to the US Thanksgiving holiday. Fears of terror attacks, particularly on the US interests, normally prompt investors to seek haven in the European assets. In Europe, analysts expect the European Central Bank to cut interest rates this week. Some dealers say an aggressive rate cut could boost euro sentiment - even though it would reduce attractive interest rate differentials - by signalling the ECB is keen on stimulating euro zone growth. Euro/dollar would appear to have slight downside, but if the expected ECB rate cut on December 5 is 25 basis points — the expected rate gap could move back slightly in favour of the euro.

Meanwhile this week, the dollar veered off one-month peaks against the euro and the yen on December 2, after unexpectedly weak US manufacturing data dented investors’ hopes that the outlook for the economy was brightening. With the yen broadly weaker because of the Japanese officials’ efforts to talk down their currency, the dollar’s retreat was sharpest against the euro. The yen fell to its lowest levels since August 1999 against the euro and set one-month lows against the dollar as investors speculated that Tokyo, in an effort to boost Japan’s export-reliant economy, was stepping up a campaign to weaken the yen. The single currency shot up to one-week peaks not far from the psychologically important $1 level after data showed the US factory sector contracted for the third straight month in November - rebounding nearly 1-1/2 cents from its lows. In the late US trading, the euro was around $0.9970 up 0.30 per cent from the previous US close, and not far from session peaks above $0.9980. The euro was up nearly 2 per cent on the day, trading above 124 yen not far from the day’s highs near 124.35 yen. The dollar was trading around 124.50 yen up 1.60 per cent but off the day’s peak above 125 yen.

Analysts said continuing sluggishness in the US factories may not hamper the dollar for very long. The market widely expects the European Central Bank to cut rates by up to 50 basis point, the ECB officials have been sending strong signals that they are ready to ease for the first time in over a year. The yen was down more than 1.50 per cent against both the dollar and the euro in the late US trading as investors took notice of overnight comments from Japan’s finance minister who reportedly said the yen was excessively strong and should trade around 150-160 - far lower than its current levels around 125 per dollar.

Most traders dismissed Shiokawa’s reported range as too far off current levels to be a realistic target but speculative bids helped trip some stop-loss buying, pushing the dollar to as high as 123.45 yen, its best since October 29.

Sterling slipped against the firming dollar but held firm versus the euro underpinned by expectations that the British interest rates would remain steady while euro zone ones may be cut this week. Disappointing British manufacturing sector data knocked the pound from the session’s early highs against the single currency but it was still at its strongest level for nearly a week at 63.80/83 pence per euro.

The dollar was buoyed by yen troubles and hopes a US economic recovery may be on its way, although weaker than the expected US manufacturing data helped rescue the pound from the day’s lows at $1.546, to stand 0.3 percent down at $1.5520 in the late European trade.

On December 3, the yen hunkered near a one-month low on the dollar after the Japanese Finance Minister said a much weaker currency was “appropriate”, though he denied saying it should be in a range of 150-160 yen. The Japanese currency tumbled to a one-month low of 125.05 yen to the greenback and a three-year low versus the euro on reported comments that the yen was excessively strong and should be around 150-160 yen to the dollar.

The dollar blipped lower to around 124.35 yen from around 124.60 on that remark, but drew support after he said the dollar at 150 to 160 yen would be appropriate if you calculate from Japan’s purchasing power partly. By late Tokyo trade, the dollar stood at 124.62/65 yen having traded up to 124.83 from 124.50 in late New York. The euro touched a fresh three-year high on the yen around 124.40 against 124.13 in the late US the single currency was at 99.66/69 cents against 99.75.