The rupee opened the week on a negative note on December 30, as higher corporate demand for dollar in the inter-bank market pushed it down by 4-paisa over the previous week end close to trade at Rs58.35 and Rs58.37 versus the dollar.

However, this proved short-lived as the rupee staged a recovery on December 31, due to strong selling pressure on dollar. The local currency extended gains in the remaining period. At the close of the week the rupee was seen trading against the dollar at Rs58.24 and Rs58.26 on January 3, 2003, gaining 11 paisa in the last four days. Over the previous weekend close, the rupee was higher by 13 paisa against the dollar.

In kerb dealing, the rupee/dollar parity remained firm. New year commenced on a happy note as the rupee was able to break the barrier of Rs58 against the dollar and traded at Rs57.95 and Rs58.05 on January 1, the first day of 2003. The rupee’s firmness over the dollar persisted throughout the week, amid slow activity. At the close of the week on January 3, the dollar was trading at Rs58.0 and Rs58.10, down 10 paisa over the previous weekend close.

The euro traded in a narrow range. During the week the rupee weakened in the first three days against the euro, shedding 45 paisa on strong euro demand, with euro touching the week’s highest level at Rs60.75 and Rs60.01 on January 1, and crossing Rs61 barrier before assuming downtrend. In the last three days, however, the rupee was able to recover 65 paisa against the euro, closing the week on January 3, at Rs60.10 and Rs60.40.

Against other major currencies, the rupee at the inter-bank forex counter weakened against the British pound, the Canadian, Australian and New Zealand dollars, the Japanese yen, the Norwegian krone and the Swedish krona. It displayed strength versus the Swiss franc, the Hong Kong and Singapore dollars, the Danish krone, the Malaysian ringgit, the Saudi and Qatari riayals, the UAE dirham and the Kuwaiti dinar. It was unchanged against the Chinese yuan.

With huge dollar stocks in the market and tight liquidity position, no major movement is expected in the rupee/dollar parity. Rupee is likely to remain firm in coming days. The rupee has remained stable since recovering from its lows at Rs64.25 in September 2001.

In the international financial market, investor-pessimism sent the dollar to its lowest level in three years against the euro and a 3-1/2 month low versus the yen towards the close of the year as lacklustre data cast doubt on the pace of the US economic recovery. With the market increasingly disquieted by the prospect of war with Iraq and a brewing confrontation with North Korea, the US manufacturing and housing data showed the pace of economic recovery remains stubbornly uneven.

With exchange flows light because of the impending New Years day holiday, the dollar fell to its lowest since November 1999 against Europe’s single currency, trading around $1.0480 in late dealings, down 0.40 per cent on December 30. the dollar bought 1.3862 Swiss francs setting a new four-year low and traded at its weakest level since September 10 against the yen, changing hands near 118.50 yen in late trading, off 1.15 per cent from its prior US close. The euro suffered its largest one-day fall in more than 2 weeks against the yen off more than a per cent before paring its losses to stand at 124.20 yen.

Sterling fell to a one-month low against the buoyant yen but kept its firm tone versus the dollar as rising tensions on Iraq and North Korea kept funds out of the greenback and into the yen. The pound had fallen more than two yen from late New York levels on December 27 to a low of 190.21. Against the dollar it held steady at $1.6046, close to its 2-1/2 year peak set last week. Sterling had fallen to six-month lows against the euro of 65.17 pence before trimming its losses. On a trade-weighted basis, it had dropped to its lowest level since September.

On December 31, the dollar slipped to a three-year low against the euro and a four-year low versus the Swiss franc as investors sought haven from risks associated with a possible war with Iraq and mounting tensions with North Korea. Global tensions are the axis on which the dollar has spun over the past several months. Pressure on the dollar has come from fears of a US-led war against Iraq early in 2003 and, more recently, North Korea’s moves to restart its nuclear programme.

In trading made light by the new years holiday. Europe’s common currency hit its highest peak against the dollar since November 1999, near $1.05. The single currency was unchanged on the day but finished 2002 more than 17 per cent stronger than its close a year ago. The dollar changed hands around 1,3810 Swiss franc, the lowest since January 1999 and 0.35 per cent lower on the day. Meanwhile, sterling hit its strongest levels in more than 2-1/2 years versus the dollar above $1.61.

Sterling ended the year with fat gains versus the dollar, reaching a 2-1/2 year peak. The pound had risen more than half a percent from late New York on December 30 to $1.6133, its highest since February 2000, bringing its gains this year to more than 10 percent. Against the euro, it fell as low as 65.51 pence, its lowest since September 1999, with its year-to-date loss at six per cent. But the pound recouped the day’s losses as it rose versus the dollar and selling by a US bank faded. It was also helped by a newspaper report that the British Prime Minister has ruled out a referendum on whether Britain should join the euro during his current term in government.

The battered US currency rose from a 3-1/2-month trough against the yen reached in offshore trading after a Japanese Ministry of Finance source warned that Japan could still act to stem export-damaging yen strength despite the year-end holiday. In late trade, the dollar bought 118.70 yen, a fraction of a year away from previous day’s low. Meanwhile, the euro changed hands above 124.70 yen.

The dollar fought back from recent multi-year low after a rout at the end of 2002, but nagging concerns about the US-led action against Iraq and uncertain US recovery prospects tempered early gains. The greenback leapt as much as three-quarters of a per cent against the Swiss franc and over half a per cent against the euro and the yen in choppy early trade as investors who had bet on further dollar losses ahead of the holiday period locked in profits. But its rebound stalled as the recent build-up of the US troops in the Gulf made investors reluctant to bet on a sustained recovery in the US currency which last year suffered its sharpest slide since 1987.

Despite the dollar’s steadier tone on January 2, signs the US is preparing for military action in the Gulf and another rise in oil prices kept investor risk aversion relatively high. The dollar is seen vulnerable to military action in the Gulf as risk tends to disrupt the international flow of capital, making it harder of the United States to fund its huge current account deficit.

The dollar started 2003 with a bang, rising on January 2 by over 1 percent from multi-year lows against European currencies, while also gaining 1 per cent against the yen on a much-stronger-than-expected US manufacturing report.