Euro breaks Rs75 barrier
Euro, however, remained volatile versus the rupee as it broke Rs75 barrier during the week in review. Due to tight supply of dollar in the local currency market, the rupee opened the week on a negative note and shed two paisa against the dollar in the inter-bank market on April 24, changing hands at Rs60.02 and Rs60.04. Last week it closed at Rs60.00 and Rs60.02.
Balanced demand and supply supported the rupee to maintain its firmness versus the dollar on the second day of the week in review. However, it closed marginally lower at Rs60.03 and Rs60.04 after shedding one paisa versus the dollar on April 25. On April 26, bearish sentiment prevailed in the inter-bank market as the rupee lost four paisa versus the dollar for buying and five paisa for selling to trade at Rs60.07 and Rs60.09 on higher demand to meet payments requirements.
The rupee managed to recover from its overnight weakness on April 27 on easy supply of dollars, and picked up two paisa for buying but slid three paisa for selling changing hands at Rs60.03 and Rs60.05. Steady supply of dollars restricted the rupee from making sharp losses versus the greenback, amid low trade on April 28. The rupee traded at Rs60.05 and Rs60.06 versus the dollar, marginally down one paisa for selling and two paisa for buying. During the week in review, the rupee in the inter bank market lost five paisa versus the dollar in low trade.
In the open market, the rupee continued its weekend’s slide versus the dollar as it was sharply lower on rising demand for the US currency on April 25. The rupee lost 12 paisa and traded at Rs60.30 and Rs60.35, against the previous week’s close of Rs60.18 and Rs60.22. On April 25, the rupee did not show any change for buying but lost five paisa for selling. It was seen changing hands at its overnight rates of Rs60.30 for buying and Rs60.40 for selling. It did not show any change versus the dollar for the second consecutive day on April 26 and continued to be quoted at Rs60.30 and Rs60.40.
On April 27, the rupee in the open market managed to show strength over the American currency as it recovered seven paisa to trade at Rs60.23 and Rs60.28. On April 28, the rupee gained three paisa against the dollar trading at Rs60.20 and Rs60.25 in the open market. Over the previous week close the rupee in the open market lost only three paisa versus the dollar this week.
Against the European single common currency, the rupee crossed the barrier of Rs74 on euro’s appreciation in the world markets and shed 35 paisa on the first day of the trading in the week in review, when it was seen changing hands in the local market at Rs74.05 and Rs74.15 against previous week end’s Rs73.70 and Rs73.80. The rupee continued its weakness versus the euro on the second day, losing 14 paisa to trade at Rs74.20 and Rs74.30.
On the third day of trading, the rupee further extended its overnight fall, shedding 15 paisa versus the euro to trade at Rs74.35 and Rs74.45. The rupee continued to weakened versus the European single currency and shed 25 paisa more trading at Rs74.60 and Rs74.70 on the fourth day of trading. Finally on the fourth day of trading, the single European currency crossed Rs75 mark on the back of dollar’s slide in the international markets.
On April 28, the euro was seen changing hands at Rs74.95 and Rs75.05, as the rupee continued to weakened and lost 35 paisa more against the European single common currency. The rupee remained sharply weak versus Euro in the local currency market this week. It cumulatively lost Rs1.25 this week before crossing an important mark of Rs75.
In the international financial market, the dollar slid to a three-month low against the yen on April 24, weighed down by calls by finance officials around the world that China should do its part to mend global imbalances by letting its currency strengthen. The dollar’s drop has gained momentum after the meetings of the Group of Seven nations and the International Monetary Fund over the weekend underscored the un-sustainability of the US trade deficit, especially as the Federal Reserve nears the end of its two-year campaign to raise interest rates. The dollar at one point slid two per cent to 114.25 yen it’s lowest since January, before recovering to 114.52 by late New York trade.
The yen is often traded as a proxy for the Chinese yuan, which does not float freely, because of the close geographic proximity and trade ties. The euro dropped around 1.3 per cent to 141.95 yen but rose 0.5 per cent against the dollar to $1.2414, a fresh seven-month high. The dollar index rallied 12 per cent last year as the Fed widened the US interest-rate advantage over several major currencies. But now that the market is anticipating an end of the current US rate cycle, structural factors such as the huge US trade deficit, instrumental in the dollar’s three-year drop through the end of 2004, are surfacing again.
The finance ministers of some of the world’s biggest economies, meeting in Washington over the weekend, called for “necessary appreciation” in the currencies of major exporting nations, especially China, to help resolve global imbalances. The mention of China in the statement took markets by surprise to the detriment of the dollar, because most analysts believe a more free-floating yuan would gain in value due to the world’s demand for Chinese exports. The euro gained additional support as comments from Qatar added to speculation that more and more central banks are shifting their reserves away from the dollar and into the euro for necessary adjustments to occur.
Sterling was slightly higher against the dollar and flat versus the euro with early gains wiped out after momentum gained on stronger than expected UK data faded. It rose as high as $1.7931 after the data, just short of last week’s seven-month high of $1.7935. By afternoon, sterling was trading at $1.7831, up just 0.1 per cent on the day.
On April 25, the dollar dropped to seven-month lows against the euro, weighed by negative sentiment and comments from European Central Bank officials that hinted euro zone interest rates could meet or even exceed expectations. The euro climbed 0.3 per cent to $1.2430, after earlier hitting a seven-month peak of $1.2439. It has risen for the last three sessions. Earlier, the ECB Vice President Lucas Papademos for the first time acknowledged that interest rates might be increased at least twice more this year.
The ECB comments cancelled dollar gains against the euro after a batch of solid US economic data bolstered the perception in the financial markets that the US interest rates will keep raising. The dollar gained 0.4 per cent to 114.85 yen, off a three-month low of 114.22 yen hit a day earlier. Such small gains against the yen by the dollar when benchmark Treasury yields made their largest single-day rise in nine months exemplified how much sentiment on the dollar has deteriorated recently.
Investors are keeping a close eye on the US housing sector, since any stalling of the once red-hot industry could herald a wider economic slowdown and lead the Federal Reserve to wrap up its credit-tightening campaign. Sterling, which earlier popped up to a fresh seven-month peak of $1.7942 retreated to $1.7875 while the dollar was relatively flat against the Swiss franc at 1.2681 francs. The Canadian dollar, meanwhile, strengthened after the Bank of Canada raised a key interest rate to four per cent, as expected, and sounded a little more upbeat on the economic outlook
On April 26, the dollar fell against the euro for the fourth consecutive session, slipping to seven-month lows as a renewed focus on the US deficits took attention away from otherwise solid US economic data. Analysts said the dollar’s failure to rise even after a strong durable goods report and surprisingly robust new home sales data highlighted just how negative the market had turned on the US currency. However, some analysts said the euro’s rapid three-cent ascent in the last two weeks could mean the euro zone currency is in store for a correction lower ahead of congressional testimony from Federal Reserve Chairman Ben Bernanke.
The euro edged up 0.1 per cent to $1.2445, after climbing to $1.2470. Traders said a break above $1.25 could induce a further rise in the euro. The dollar slipped 0.1 per cent to 114.72 yen, still above a 3-month low around 114.20 struck on the opening day of the week. The near-term course for the dollar could be determined by Bernanke and whether the tone of his comments indicates the US central bank is leaning toward tightening policy further or keeping things steady. The dollar has lost one per cent against a basket of major currencies since a weekend meeting of the Group of Seven major industrialised nations shone a spotlight on the large US trade deficit and called for more appreciation in China’s currency.
The dollar’s weakness was most pronounced against the “commodity currencies,” those of countries which primarily export raw materials. Prices for commodities such as gold, oil and copper have spiked in recent months, benefiting them. The dollar fell to a 14-year low against the Canadian dollar and a near-three month low against the Australian dollar. Sterling hit a three-week low against the euro and edged down against the dollar as the single currency broadly rallied, shrugging off British first-quarter growth data which came in line with expectations. Against the dollar it was down slightly at $1.7847.
On April 27, the dollar tumbled to a seven-month low against a basket of major currencies after Federal Reserve chief Ben Bernanke gave the clearest signal yet that the current campaign of raising interest rates may be coming to an end. The dollar extended losses made earlier in the week after finance chiefs of the Group of Seven major industrialised nations urged China and other Asian countries to let their currencies rise to help mend global imbalances.
Against the dollar, the euro spiked above the psychologically important $1.2500 level to $1.2548, the highest since September 2005, after Bernanke in congressional testimony said “at some point in the future” a pause in rate increases may happen. The dollar slid to a seven-month low against a basket of major currencies as traders took Bernanke’s remarks to mean the Fed may stop raising rates after an expected quarter-percentage-point increase in May to 5.0 per cent.