The currency market witnessed dull trading activities last week. Year end payments kept rupee under pressure. During the week, rupee in the inter-bank market lost 5 paisas. After opening the week at Rs57.43 and Rs57.44 on December 22, the rupee shed 3 paisas on December 23, trading at Rs57.46 and Rs57.47. It remained unchanged in the remaining days.
In the kerb trading, demand for dollar also remained strong. Rupee opened the week on a positive note and gained 10 paisas versus the dollar changing hands at Rs57.30 and Rs57.35 on December 22. In the remaining week, decline in rupee against dollar persisted. It lost 15 paisas in three days and closed the week at Rs57.45 and Rs57.50. However, over the previous weekend the rupee during the week showed a deprecation of 5 paisas only.
The demand for euro also remained strong and the rupee weakened by 45 paisas in the week. It opened on a negative note on December 22, shedding 30 paisas to trade at Rs57.20 and Rs57.50. It gained 5 paisas on December 23, and than remained unchanged for 3 days at Rs71.15 and Rs71.45. Rupee closed the week on December 26, at Rs71.30 and Rs71.60 against the euro.
In the international market, the dollar retreated against major currencies on December 22, plunging another record low against the euro as a heightened security alert provided investors more reasons to sell the greenback in a thin market. The US government raised its security alert on Sunday to “Orange,” the second-highest level, saying there was a high risk in the holiday period of an attack that could be even bigger than the events of September 11, 2001. The terror warning came out overnight and that put the dollar on the defensive. Dollar selling took hold in thin, pre-holiday trading.
Analysts noted the euro had stopped just short of $1.2450, an area of key chart resistance and the equivalent of the German mark’s 1987 high against the dollar. The dollar fell to a fresh low of $1.2447 against the euro in a skittish European session, its 14th record low in 17 trading sessions. In New York, the euro was up by 0.3 per cent on the day to $1.2407. The US currency came within a short stretch of last week’s seven-year low against the Swiss franc. By late afternoon, the dollar was trading at 1.2567 francs, nearly flat on the day. Against the yen, the dollar was down by 0.2 per cent at 107.51 yen. The pound meanwhile, was down by 0.2 per cent to $1.7632.
In London, the pound fell sharply against the euro in a thin market by year-end conversions of sterling receipts into euros. Sterling was a quarter per cent lower on the day against the weak dollar, having trickled gradually lower from the last week’s 11-year peak above $1.7740. The pound’s underperformance has been driven by euro/sterling demand. The pound stood at 70.57 pence per euro, down around 0.7 per cent on the day and pushing towards the bottom of the range it has held for several months against the single currency.
On December 23, the dollar hovered little changed against most rivals in a thin market as investors shrugged off a quite robust batch of the US economic data. There appears to be few catalysts on the horizon that could propel a dollar recovery and pull the greenback out of its persistent decline. The ultra low US interest rates continue to punish the dollar against higher-yielding counterparts as foreign capital inflows are failing to offset the hefty US current account deficit. In New York, the euro was down by 0.06 per cent on the day at $1.2390. Against the yen, the dollar was down by 0.1 per cent to 107.37 yen. Against the Swiss franc, the dollar was at 1.2588 francs, up by 0.1 per cent on the day. The Canadian dollar had a nice comeback against other major currencies. The US dollar was buying C$1.3204 down 0.7 per cent on the day.
Traders also remain wary of yen-weakening intervention by the Japanese authorities during the thin holiday period, after Japan spent record amounts this year to curb the strength of the yen and protect the country’s export-led recovery. The pound, meanwhile, was virtually flat at $1.7632 after data showing the British growth at an upwardly revised 0.8 per cent in the third quarter but a widening in the current account deficit during the same quarter, to 8.1 billion pounds. Earlier, the dollar hardly budged after a final reading on the US third-quarter gross domestic product growth came in at a healthy annualized 8.2 per cent, in line with market forecasts.
In London, sterling kept to tight ranges against the euro and the dollar in quiet pre-holiday trade largely unmoved by the economic data which showed upbeat British growth but a disappointing current account deficit. The economy expanded faster than previously estimated in the third quarter, growing by 0.8 per cent from the previous three months and by 2.1 per cent against the same period last year. Analysts had expected growth at 0.7 per cent.
Despite the fastest quarterly growth since the third quarter of 2002, the current account deficit swelled to 8.1 billion pounds ($14.29 billion), underscoring economic imbalances in Britain. Sterling traded unchanged on the day against the dollar at $1.7641, below recent 11-year highs of $1.7742. It was also steady against the euro, compared with overnight close, at 70.22 pence but well within recent ranges.
On December 24, the dollar traded in tight ranges against the major currencies as a holiday-thinned market brushed aside robust US data and news that mad cow disease had been discovered in the United States. The dollar was at 107.34/39 yen compared with 107.42/51 in late US trade. The greenback remained with one per cent of recent all-time lows against the euro and three-year lows versus the yen. The euro was trading at $1.2409/14 versus $1.2391/96. The single currency hit a record high of 1.2450 on December 22.
However, with trading reduced to a trickle, the already embattled dollar seemed to have been spared from mad cow fallout. Traders said the currency was likely to stay range-bound for the rest of the year until market players returned from the year-end holidays.
At the close of the week on December 26, the dollar was softer brushing against recent record lows against the euro and probing two-week lows against the yen on persistent worries about geopolitical risks and a bulging US current account deficit. Still, a lack of momentum in thin post-Christmas trade and wariness of intervention by the Japanese authorities prevented the dollar from plunging to new lows against the euro and retesting three-year lows set against the yen earlier this month.
The euro hovered around $1.2460 — within sight of record highs set two days earlier at $1.2470. It briefly rose to $1.2469 on electronic dealing systems before running out of the steam. The dollar also slipped toward 107.00 yen down a quarter yen on the day and precariously close to three-year lows around 106.75 yen set in mid-December. Traders said the market appeared hesitant to push the dollar below 107 yen in the current thin market for fear that it could prompt the Japanese authorities, who have been worried that a stronger yen could stall Japan’s export-led economic recovery, to intervene and send the dollar sharply back up.
Against the Swiss franc, the dollar was trading at 1.2520 francs, up 0.3 per cent on the day. The pound, meanwhile, was up 0.06 per cent at $1.7726. The UK markets are shut until December 29. Virtually all traders in London and New York were off for Christmas on December 25 and many in New York were likely to take December 26 off as well, keeping global volume subdued.