The market witnessed sluggish trading this week. The rupee experienced an upward trend amid thin trading in the inter-bank market, where the demand for local currency was high, while in the open market, sellers were active in offloading their dollar holdings, but on limited scale.

There was hardly any demand for dollar in the inter-bank as well as the open market. In the inter-bank market, the rupee breached its key resistance level of Rs58 a dollar after opening the week on a stable trend. The rupee gained 21 paisa versus the dollar in the following five trading sessions. At the close of the week, the rupee was trading at Rs57.98 and Rs58.0 against the opening week’s level of Rs58.19 and Rs58.21.

In the kerb dealings, lack of demand for dollar and higher inflows helped the rupee to hold ground, gaining 15 paisa during the week. People were seen converting their foreign currency holdings into the local currency to meet their personal expenses ahead of Eid-ul-Azha. At the close of the week, the rupee was seen changing hands at Rs57.85 and Rs57.90 against the dollar compared to the opening week’s level of rs57.98 and Rs58.03 and last weekend’s level of Rs58.0 and Rs58.05.

The euro on the other hand continued to attract the investors and traded in a narrow range, but it failed to maintain its stable trend versus the rupee. It opened the week at Rs62.10 and Rs62.40, down 35 paisa versus the rupee compared to Rs62.45 and Rs62.75 in the previous week. At the close of the week it was trading at Rs62.15 and Rs62.35. Thus it lost 30 paisa for buying and 35 paisa for selling amid fluctuations during the week.

Against other major currencies at the inter-bank forex counter, the rupee showed strength over the British pound, Canadian, Hong Kong and Singapore dollars, Swedish krona, Norwegian krona, Japanese yen, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and the UAE dirham. It, however, remained weak versus Swiss franc, Australian and New Zealand dollars, and Danish krone.

In the international financial market, the dollar rose against the euro and yen on February 3, underpinned by expectations that a gauge of the US manufacturing activity in January would show growth and momentarily dispel concerns about the economy. In early US trading, the euro changed hands around $1.0740 against the dollar, having recovered from its offshore dip below $1.07 but well below a 3-year high reached last week above $1.09. The dollar shot to its strongest levels since late December against the yen in Asia trading. The US currency pared those gains to stand near 120.40 yen, up nearly half a per cent on the day.

Sterling retreated versus both the dollar and the euro as a January survey of Britain’s manufacturing showed further deterioration in the battered sector, fanning worries over the country’s economic prospects. Sterling lost two-thirds of a per cent to the recovering dollar to trade at $1.6375, sliding off three-year highs on the US currency of $1.6569 set last week. The dollar got a boost from the January US manufacturing survey, which showed the activity index easing to 53.9 from December’s 55.2 but above the 53.7 reading forecast by analysts. Against the euro, the pound was a quarter of a per cent lower at 65.49 pence.

On February 4, concerns over a possible war with Iraq sent the dollar fractionally close to a 3-year low against the euro ahead of a pivotal briefing to the United Nations by US Secretary of State Colin Powell. Unease prevailed in markets as Powell prepared to build a case for action against Iraq. With major US stock benchmarks sliding by more than 2 per cent at midday, the euro surged to levels just below $1.09, up a full per cent on the day and less than 1/4 cent from its strongest level since October 1999 at $1.0907. The single currency hit its strongest level in more than 3-1/2 years against the yen, trading at 130.30, up 0.45 per cent on the day.

The dollar fell to 119.70 yen, down 0.50 per cent on the day, but marginally supported by the fear that Japan could sell its currency for dollars in order to prevent its strength from undercutting an export-led recovery. Broad risk aversion sent the Swiss franc more than 1 per cent higher versus the dollar, trading near 1.3470 francs, within view of a 4-year high.

Sterling rode a wave of renewed war jitters higher versus the dollar as the geopolitical agenda grabbed the full attention of currency markets and domestic news failed to raise the pressure. Sterling traded at $1.6473 in afternoon European trade, gaining quarter of a per cent since New York’s close. It was at 65.88 pence per euro having shed 0.6 per cent on the day against the single currency, which was taking aim at its recent three-year high on the dollar.

On February 5, the dollar soared as the United States made what many traders believed was a strong case against Iraq, but the greenback pared gains later when it became clear that other members of the UN Security Council remained wary of tougher action. After sinking to its lowest level in near four years against the euro, it rose sharply on views Powell’s testimony would rally support around the US cause.

The dollar has been under pressure for more than a year, but losses accelerated late in 2002 on the threat of war. The possibility of a drawn-out conflict or a new wave of attacks against the US interests in the event of war has hurt consumer confidence, caused businesses to delay investment and discouraged investors from buying US assets. The dollar rose as high as $1.0738 per euro, 2 cents above the overnight lows of $1.0938 per euro. Moreover, the dollar failed to breach trendline resistance at $1.0735 per euro, which would have been a much stronger harbinger of dollar gains. In late New York dealings, the dollar was 0.97 per cent higher against the Swiss franc at 1.3599 francs, having risen as high as 1.3688 francs after having made new four-year lows of 1.3457 francs overnight. The dollar rose 0.26 per cent to 120.06 yen.

Sterling erased earlier gains to edge away from last week’s three-year peak on the dollar. Mixed signals on the British economy from data showing a rise in house prices and a slowdown in the services sector hardly affected the market so preoccupied with concerns about a US-led war on Iraq and its possible damage on the greenback. The pound pushed higher against the dollar earlier in the day to come close to last week’s peak, only to fall to $1.6463. Against the euro it stood at 65.95 pence.

The dollar fell on February 6, as it became increasingly clear that the United States had failed to rally support for a more forceful disarmament of Iraq. The US currency rose sharply on February 5 after US Secretary of State Colin Powell presented evidence to the UN Security Council showing Baghdad had concealed elements of its weapons programme. But the dollar drifted late as other veto-wielding members of the Security Council called for more time for weapons inspectors to do their work.

In New York, the euro was trading at $1.0832 up 0.44 per cent on the session. The dollar was off 0.47 per cent against the Swiss franc at 1.3536 francs. Dealers said the euro gains were limited by talk of selling by mostly European central banks in the $1.0855-65 area, near the day’s highs. The dollar slipped 0.13 per cent against the yen to 119.80 yen. Dealers again cited fears of Bank of Japan yen-selling intervention to keep its currency from appreciating too quickly. Japan quietly sold some $6 billion worth of yen in January.