No major change was witnessed on the week’s second day ahead of the two-day holidays on account of Ashura. The rupee ended the day on a firm note, showing no variation in terms of the dollar and changing hands at Rs59.85 and Rs59.86.
Trading remained suspended in the inter bank market on the following two days being holiday on account of Ashura. When trading resumed on February 10, after holidays, the rupee maintained its firmness versus the dollar at Rs59.85 and Rs59.86. Throughout the week, the rupee remained stable due to strong supply of dollar.
In the open market, the rupee maintained its weekend levels at Rs59.80 and Rs59.90 on February 6. However, on February 7, the rupee shed five paisa for buying, while it remained unchanged for selling to trade at Rs59.85 and Rs59.90. When trading resumed after two-day break, the rupee maintained its pre-holiday level for buying but it shed five paisa for selling to trade at Rs59.85 and Rs59.90 on February 10.
Against the euro, the rupee picked up five paisa on February 6 and traded at Rs71.60 and Rs71.70. On February 7, the rupee maintained its recovery and gained 10 paisa to trade at Rs71.50 and Rs71.60. On February 10, the rupee managed to gain five paisa and traded at Rs71.45 and Rs71.55. Last week, the rupee traded at Rs71.65 and Rs71.75. Thus it recovered 20 paisa versus euro this week.
The dollar has failed to show its strength versus the leading currencies in the world markets after the upbeat US data on the opening day of the week. The dollar scaled one-month peaks against the euro, sterling and Swiss franc on February 6, drawing support from market expectations that the Federal Reserve is not yet done raising the US interest rates.
The US jobs data released last weekend showing signs of increasing wage pressures have also helped the dollar retain broad support against the three major European currencies. The broad sense of dollar bullishness encouraged traders to aggressively push key technical chart levels, particularly support for the euro converging around $1.1965. Support eventually cracked, triggering pre-placed sell orders and driving the euro below $1.1950 for the first time since January 3.
At mid-day trading the euro was down 0.5 per cent at $1.1958, having fallen as low as $1.1947, a one-month low. Sterling fell to as low as $1.7435, the lowest since January 3, before trading back up to $1.7471, down 0.9 per cent from late Friday. The dollar was up 0.5 per cent against the Swiss franc at 1.3013 francs. Earlier, it rose to a one-month peak at 1.3039 francs.
Against the yen, the dollar was modestly higher at 119.00 yen, with sharp gains in the Nikkei stock index, which hit a 5-1/2-year high overnight, helping limit the Japanese currency’s losses against a resurgent dollar. The euro broke key technical support at 142.50 yen, to trade at 142.36 yen, down 0.4 per cent on the day.
The Brazilian real, a bellwether emerging market currency and often considered a benchmark for investor-risk appetite, traded at a two-month high. Following a sharp fall to a new post-revaluation low against the Chinese yuan of 8.0560 yuan overnight, the dollar was under downward pressure against Asian currencies in general.
Also on February 6, the Bush administration released its 2007 budget, showing an expected rise in the fiscal deficit next year to $423 billion, up from 2006’s $318 billion, due to spending for the Iraq war and on rebuilding after Hurricane Katrina. The US government, however, said it can halve the budget shortfall by 2009 to $208 billion.
On February 7, the dollar fell against the yen as markets speculated about possible changes to the Bank of Japan’s super-loose monetary policy following its upcoming meeting, later in the week.
This should narrow the United States’ rate advantage over Japan’s, analysts said, and lend further support to the yen. The dollar has rallied in recent sessions on expectations of further US interest rate hikes from the Federal Reserve.
In late trading, the dollar traded lower at 118.04 yen, down 0.8 per cent from the previous day, having fallen as low as 117.62 yen earlier. The greenback hit a seven-week high of 119.39 last week.
Most of the yen’s sharp move came during a three-hour dollar sell-off after Tokyo closed and the European session got going, traders said.
Dollar/yen, however, has been contained to a 40-point trading range in the New York session, after suffering steep losses overnight. Trading has since been light in the pair, with the focus leaning toward the yen’s price action against other crosses outside the dollar.
The sharp moves in the yen were mirrored in similar unwinding of positions in other asset classes, particularly commodities.
Gold tumbled as much as $20 on the day, posting its biggest one-day fall in nominal terms for over 12 years, while oil fell to just above $63 a barrel. The fall in gold and the plunge in dollar/yen weighed on the Mexican peso against the greenback, which rose 0.8 per cent at 10.5445 pesos, analysts said.
The drop in oil prices pressured the Canadian dollar against the US currency, which rose 0.6 per cent to a one-week high around C$1.1534. Large buying by a US investment bank drove the currency through C$1.1500 where a German bank also stepped in to buy US dollars. The euro was down 0.7 per cent against the yen at 141.37 yen, while sterling posted its biggest one-day fall against the Japanese currency in almost two months.
Late in New York, sterling/yen fell more than one per cent at 205.91 yen. These moves helped shackle the euro against the dollar. Having briefly popped above $1.20 earlier in the day, the European single currency was up just 0.1 per cent at $1.1980. Sterling slipped 0.2 per cent at $1.7446, undermined by the weak UK retail sales data, while the dollar was off 0.3 percent against the Swiss franc at 1.2973 francs.
On February 8, the yen eased against the dollar in Tokyo trade, but held most of its overnight gains as the start of a two-day Bank of Japan policy board meeting kept traders speculating over the end of bank’s super-easy monetary policy. Traders also said the yen was encountering some selling in Tokyo amid talk of a New Zealand dollar-denominated uridashi bond issuance following day.
The dollar was trading around 118.00 yen little changed from levels in New York where it fell about 1.3 percent. In early Asian trading, the US currency hit a low of around 117.50 yen before pulling back up. Euro/yen was at 141.25 yen down around 0.1 per cent from New York. The Japanese currency rose as high as 141.05 yen against the single currency. The euro was buying $1.1970 largely unchanged.
On February 9, the dollar was narrowly mixed in listless trade, reacting marginally to a US long bond auction that showed what appeared to be strong foreign appetite for dollar assets, but weak overall demand. The euro initially rose to around $1.1981 immediately after the auction from about $1.1972 before. By late trading, the euro rose modestly to $1.1976, up 0.2 per cent from a day earlier.
Against the yen, the dollar gained 0.3 percent to 118.82 yen. The dollar was flat at 1.3000 francs. Sterling also was little changed at $1.7411. The pound showed a muted reaction to Bank of England’s decision to leave rates unchanged. Trade was slow partly because the market was looking ahead of weekend US trade data.
At the close of the week on February 10, the yen surged nearly one per cent against the dollar and euro after a series of upbeat economic data boosted expectations that the Bank of Japan will soon end its ultra-easy monetary policy. The dollar’s losses accelerated after stop-loss orders were triggered following the release of data showing Japanese machinery orders jumped more than expected in December.
Market participants said much activity was driven by traders trimming long dollar positions ahead of December data for US trade as poorer-than-expected figures could shift the market’s focus to the growing US trade gap and crank up selling pressure on the dollar. Economists expect the data to show the US trade deficit widened to $65 billion in December from November’s $64.2 billion, which was the third-highest monthly level ever.
In Tokyo, the dollar was trading just above its lowest level of the day at 117.90 yen, down nearly 0.80 per cent from levels late on February 9 in New York. The yen jumped after data showed that core machinery orders rose 6.8 per cent in December from the previous month, exceeding market expectations for a 1.5 per cent increase. This helped to set off stop-loss orders in the 118.20-118 region.
Against the euro, the yen was trading at 141.15 yen rising on the back of the Japanese currency’s gain against the dollar. The single currency was down about 0.8 percent on the day. Euro/dollar trading was at 1.1975, largely unchanged from late US trade. Sterling stood at $1.7406, little changed from before the BoE decision and steady on the day, but within sight of the previous day’s five-week lows of $1.7375.