Lacklusture activities were noticed at the local currency market last week. Quiet trading was observed in the inter-bank market where the rupee opened the week on a dismal note following one paisa decline against the dollar on December 23.

Rise in demand for dollars by local and foreign banks exerted slight pressure on the rupee, which traded at Rs58.45 and Rs58.48 versus the dollar during the day. Dollar supply was sufficient to restrict any major decline in the parity.

On December 24, activity remained dull while selling pressure on dollar helped the rupee to recover its previous day’s losses. The rupee gained 5 paisa for buying and 8 paisa for selling to trade at Rs58.40 and Rs58.41 against the dollar ahead of Quaid-e-Azam Day holiday. Trading remained suspended on December 25, being a public holiday. The market reopened on December 26, on a positive note as the rupee extended further gains. As dollar was not in demand, selling pressure was developed which helped the rupee to gain 8 paisa. It traded at Rs58.32 and Rs58.35 against the dollar. Finally the rupee ended the week almost unchanged and traded at Rs58.33 and Rs58.35, up 10 paisa against the previous weekend close of Rs58.44 and Rs58.46. Since January this year the rupee has appreciated by almost 3 percent against the dollar.

In kerb trading, the rupee/dollar parity did not show any major change during the week. The rupee, however, continued to extend its firmness over the dollar. It opened the week on December 23, with dollar changing hands at Rs58.85 and Rs58.35. It gained 10 paisa in four days trading and finally closed the week on December 28 at Rs58.15 and Rs58.25. Investors were seen investing in euro.

Euro strengthened versus the rupee due to continued demand, both in the inter-bank market and kerb trading, during the week exerting pressure on the rupee. After opening the week at the Rs59.80 and Rs60.10 against the euro on December 23, the euro gained 30 paisa and finally closed the week at Rs60.10 and Rs60.40 on December 28.

Against other major currencies the rupee at the inter-bank forex counter gained ground this week versus the British pound, the Canadian, Australian and Hong Kong dollar, the Chinese yuan, the Malaysian ringgit, the Kuwaiti dinar, the Saudi and Qatari riyals and the UAE dirham. It extended losses against the Swiss franc, the Danish and Norwegian krones, the Swedish karona, the Japanese yen and the Singapore and New Zealand dollars.

In the international financial markets, the dollar was modestly weaker against the Swiss franc on December 23 as investors fretted about a military buildup in Iraq, but the greenback rebounded to stand unchanged to slightly firmer against most other currencies. The dollar fell to its lowest level since February 1999 against the Swiss franc on those reports during European hours and also eased to 2-1/2 year lows against sterling in New York, the dollar was off its lows of 1.4137 Swiss francs, trading at 1.4180 francs for a 0.40 per cent loss on the day.

It also took back all its losses and then some against the British pound on news of a surprising drop in the UK consumer confidence. Sterling was down a half per cent against the dollar at $1.5932 well below its highs of $1.6060. The euro also gained on the pound, rising 0.50 per cent to 64.38 pence. The euro finished flat at $1.0267 having risen as high as $1.0317 overnight. Against the yen, the dollar finished nearly unchanged at 120.41 yen. The dollar’s earlier drop to one-month lows at 119.83 yen — below the psychologically important 120 yen level — had raised some concern that the Japanese officials may step into currency markets to stem the yen’s export-damaging rise. The pound had pulled back to $1.5942 having risen as high as $1.6060, its highest since April 2000. Against the euro it fell two thirds of a per cent to 64.47 pence.

On December 24, the dollar traveled in narrow ranges in holiday-thinned Asian trade showing little reaction to Japan’s appointment of Zembei Mizoguchi as the top financial diplomat from next year. Market sentiment toward the greenback remained bearish because of concerns about a possible US-led attack on Iraq.

The dollar was at 120.35 yen little changed from 120.40 in the late US trading but some way above at one-month low of 119.83 yen hit on December 23 when the Tokyo market was closed for a public holiday. The euro was also steady at $1.0263 versus $1.0262 in late US trade. It was at 123.53 yen against 123.55. The US and European markets will be closed on December 25 for Christmas, and players expect trading to be quiet for the rest of the year.

The pound fell to a five-month low against the euro in thin trade undercut by pre-holiday position-squaring and an overhang of poor sentiment in the wake of weak consumer confidence data the previous day. Against the dollar, the pound retreated further from previous day’s 2-1/2 year high as those players not already on holiday squared positions ahead of the two-day Christmas break.

The pound was trading around 64.66/69 pence per euro, after touching a low of 64.71 earlier. It stood at $1.5926/31, down from $1.6060. Sterling was knocked from the high after data showed the British consumer confidence plunged unexpectedly in December to its lowest level since October 2001.

With many financial markets on half day’s trading ahead of Christmas the European and the US market closed on December 25 for Christmas. The Japanese officials, worried that a rise in the yen could savage Japan’s export-dependent economy, have repeatedly said in recent days that they will take action in the market if necessary. Some traders said speculators may seize on next week’s New York holidays - when Japan’s markets will be closed and the Japanese intervention is unlikely — to push down the greenback further.

On December 26, the dollar slipped to three-year lows against the euro and a four-year low against the Swiss franc in holiday-thinned Asian trade as worries over a possible war with Iraq continued to pressure the greenback. Traders said sentiment remained bearish for the US currency as speculation is growing that the United States will attack Iraq shortly after January 27 — the deadline for United Nations arms inspectors to give their reports to the UN Security Council.

Although some analysts think the impact of war on the US economy would be negligible, especially if it finished quickly, the dollar is under pressure as many firms are likely to curtail investment before the war ends, putting a brake on the economy. Safe-haven buying pushed up the Swiss franc as far as around 1.4035 per dollar, its highest since February 1998. The dollar was at 1.4041 against 1.4059 in late Asian trade on December 25. Helped by stop-loss buying, the euro firmed to as high as $1.0344, it best since November 1999, before inching down to 1.0334. It fetched $1.0318 in late Asian on December 25. The single currency stood at 124.20 yen little changed from previous day’s 124.27 yen. The greenback also edged down to 120.12 yen, compared with 120.41. Traders noted sporadic selling from the Japanese exporters.

At the close of the week on December 28, the dollar slid to multi-year lows versus the euro and Swiss franc in Asia unable to shake off its bearish tone as investor fretted over the possibility of a US-led war against Iraq. But the greenback held its own against the yen, supported by threats of Japanese intervention and year-end dollar-buying from some Japanese imports. The euro hit a three-year high of $1.0395, up from $1.0378 in the late US trade, while the Swiss franc rose to a four-year peak around 1.3990 per dollar from 1.4018 in late the US trade, as war fears preoccupied the market.