By June 15, the rupee had shed another three paisa in the inter-bank market for buying and selling. Currency analysts attribute the fall in rupee due to higher demand for dollars. The State Bank, however, is keeping an eye on the rupee fluctuations in outgoing fiscal year. The rupee parity fell further to Rs59.89 for buying and Rs59.70 for selling by the close of the week.
While the remittances show a rising trend, there has occurred some tightness in the supply of dollars due to some major payments.
In the outgoing week the dollar hit nine month highs. On June 13, in Tokyo, the dollar hit nine-month high as traders shrugged off a meeting of the G-8 finance ministers and focused on the prospect of US interest rates heading even higher.
The US currency also hit a nine-month peak versus a basket of major currencies after data showed an unexpectedly smaller trade deficit in April — one of the main drivers of the dollar’s three-year decline to the end of 2004.
Dealers said the dollar was still riding high after Federal Reserve Chairman Alan Greenspan said last week the US economy was on a “firm footing” and suggested interest rates still had room to rise.
During a meeting on June 10 and 11 finance ministers of the Group of Seven industrialized nations plus Russia (G-8) kept up pressure on developing Asian economies, particularly China, to adopt market-based exchange rates.
Adding fuel to the dollar’s sharp rise, data showed the US trade deficit was smaller than forecast at $56.96 billion in April, though still the fourth-biggest on record. The euro fetched around $1.2110 after falling as far as $1.2065, its lowest mark since September 8. In just three months the euro has dropped roughly 14 US cents, or 10.5 per cent.
In the New York market too, the dollar continued its March higher on June 14, recording fresh nine month highs against the euro as soft US economic data failed to alter the market’s view that the Federal Reserve would keep raising interest rates.
Late on June 14, the euro was hovering around the fresh 9 month low of $1.2023 hit earlier. The euro had initially risen as high as $1.2152 on the US data.
In the London market, the dollar hit its highest level against the euro in more than nine months on June 15 as markets focused increasingly on the strengthening interest rate advantage which the US holds over the euro zone.
Ten-year government bond yield spreads are approaching their highest premium in five years in favour of the US, as US interest rates are widely expected to continue to rise, while markets speculate that the next move in euro zone interest rates will be a cut.
The dollar was steady at 109.37 yen but within sight of this week’s 8-month high near 109.70. The dollar also hit 9-month highs against an index of currencies on June 15.
Meanwhile in the London market, sterling rose against the dollar after weaker than expected US data and traded close to recent 10 month highs versus the euro after shrugging off surprisingly poor UK labour figures.
In the Tokyo market the dollar clung near nine month highs against the euro on June 16, as investors fretted European Union leaders might fail to settle the budget dispute just weeks after the bloc’s proposed constitution was all but killed.
Poor growth prospects and political upheaval since the French and Dutch votes against the proposed EU treaty have prompted many investors to bail out of the single currency, favouring the dollar despite recent mixed US data. The euro fell as much as 0.5 per cent and traded near $1.2070 not far from a nine-month low around $1.2015 on June 15.
In the London market, the sterling rose against the euro on June 16. Sterling traded steady versus the dollar after briefly ticking down against both the greenback and the single currency after data showed the weakest annual rise in the UK retail sales in more than six years.
During the day, sterling rose 0.2 percent against the euro to 66.35 pence, close to a 10 month high around 66.30 pence. Against the dollar, it traded steady at $1.8205.
On June 15, in the New York market, the dollar weakened after data showed that surprisingly weak capital inflows into the US in April failed to cover the trade deficit for that month.
The dollar index, a broad measure of the dollar’s value against a basket of major currencies, posted its biggest one-day decline in three months on June 15. Across the board, the dollar retreated from multi-month highs touched earlier in the global session.
Late June 15, the euro was up at $1.2110, bouncing back sharply from another new nine-month low around $1.2015. The dollar index was off 0.7 per cent at 88.68. Against the Swiss franc, the dollar fell 0.5 per cent to 1.2707 francs and was down 0.2 percent against the Japanese yen at 109.21 yen.
In just three months the euro has tumbled more than 10 percent against the dollar, with its slide accelerating after French and Dutch voters rejected the EU constitution. Against the yen, the dollar traded around 109.30 yen after hitting a new eight-month high around 109.70 yen earlier in the week.
In the New York market, the dollar gained against the euro and Swiss franc on June 17, with technical strength and bullish market sentiment enough to shield the greenback from weak US economic data.
The dollar continues to gain support from political and economic concerns that have soured euro sentiment. European Union leaders gathered in Brussels to broker a budget deal and salvage the EU constitution after its rejection by French and Dutch voters, a meeting which intensified the currency market’s focus on factors hurting the currency.
On June 16, the dollar was up 0.2 per cent against the Swiss franc at 1.2723 francs. The euro was down. It has performed better against these two relatively low-yielding European currencies than other currencies recently, gaining around 10 percent against each so far this year.
The dollar was weaker against the yen at 108.90 yen, dragged down by the euro’s 0.4 per cent slide against the Japanese currency to 131.80 yen. Sterling was flat around $1.8220.
Meanwhile, in the London market the dollar eased off against the euro. The euro recovered to a one-week high of $1.2190, up 0.6 per cent on the day and more than a cent above a 9-month high hit on June 15. The euro has lost around 10 percent versus the dollar since January. The dollar was steady at 108.84 yen, off this week’s 8-month high around 109.70.