On November 7, the rupee showed a marginal fall of one paisa on the buying counter and another two paisa decline on selling counter, amid rising dollar demand, trading at Rs60.69 and Rs60.71. Importers were buying dollars to meet their requirements. Higher payment requirement is exerting pressure on the local currency.
The rupee continued its declining trend versus the dollar for the third consecutive day of the week in review, further shedding two paisa for buying and one paisa for selling to trade at Rs60.71 and Rs60.72 on November 8. Trading activity remained suspended on November 9, being public holiday on account of Allama Iqbal Day.
On November 10, the rupee in the inter-bank market extended its weakness over the American currency for the fourth day in a row losing marginally by one paisa to trade at Rs60.72 and Rs60.73. During the week in review, the rupee lost eight paisa against the dollar in the inter bank market.
In the open market, the rupee shed eight paisa on the buying counter and two paisa on the selling counter to trade at Rs60.68 and at Rs60.72 on the first day of trading, against previous week close of Rs60.60 and Rs60.70. However, on the second day of the week in review, the rupee showed firmness as it held overnight levels and traded unchanged at Rs60.68 and Rs60.72.
The rupee on the third day traded at its overnight levels versus the greenback remaining unchanged at Rs60.67 and Rs60.72 for the third successive day in a row. The market remained closed for Allama Iqbal Day holiday on the fourth day. The rupee gained two paisa versus the dollar in the open market and traded at Rs60.65 and Rs60.70 on the fifth day. This week, the rupee in the open market lost five paisa for buying but was stable on the selling counter at its previous week close level.
Versus the European single common currency, the rupee opened the week on a happy note, gaining eight paisa for buying and twelve paisa for selling to trade at Rs76.63 and Rs76.68 on November 6, against last weekend’s Rs76.70 and Rs76.80. On November 7, however, the rupee failed to sustain its opening week’s firmness versus the euro and lost 42 paisa changing hands at Rs77.05 and Rs77.15.
On November 8, the rupee pegged to euro at Rs77.05 and Rs77.15 showing no change for the second successive day. When the market resumed trading on November 10, after a day break, being Allama Iqbal Day holiday on November 9, the rupee gained five paisa versus the euro and traded at Rs77.00 and Rs77.10. Rupee against euro lost 30 paisa during the week in review, amid fluctuations. In the international financial markets, the dollar gained against most major currencies on November 6, extending gains fuelled by the US jobs report that backed the view the Federal Reserve was unlikely to cut interest rates soon. Traders were mostly sidelined, as markets awaited midterm congressional elections. In late New York trading, the dollar was up 0.2 per cent at 118.27 yen, while against the Swiss franc it was up 0.2 per cent at 1.2557 francs. Against the euro the dollar was flat on the day at $1.2722.
The dollar’s resilience in recent months has surprised many analysts who were expecting the currency to fall after Fed paused, the two-year long monetary tightening campaign following its last rate rise in June. But the dollar’s sell-off last week following a Fed statement that seemed to emphasise a slowing US economy more than lingering inflationary pressures bolstered the view US interest rates may have peaked.
Sterling hit one-week lows against the euro and the dollar after data showed that the British manufacturing sector failed to expand in September, casting doubts over whether rate hikes will continue into 2007. It was near earlier one-week lows of 67.05 pence to the euro, retreating from last week’s 15-month peak of 66.67 pence. Against the dollar, sterling’s losses were accentuating by growing expectations that the US Federal Reserve is unlikely to cut interest rates in the next few months, leaving the greenback with a yield advantage over the British pound. It hit a one-week low at $1.8949, before recovering some of its losses to trade at $1.8970.
On November 7, the dollar weakened but pared losses after dropping to six-week lows against the euro earlier, as traders grew cautious about the results of the US midterm elections. Traders said the dollar came off lows going into the end of the New York session, with markets covering their short positions built earlier and selling the euro after it failed to sustain gains above $1.2800 versus the dollar.
In late trading, the euro was up 0.4 per cent at $1.2771, after touching a peak of $1.2819, the highest since September 25. Traders said the euro’s earlier surge was further fuelled by stop-loss trades around $1.2780-$1.2800. The dollar fell 0.5 per cent to 117.65 yen, and against the Swiss franc, a traditional safe haven in times of uncertainty, the greenback was down 0.5 per cent at 1.2495 francs.
The Australian dollar, up 0.2 per cent at US $0.7728, was also in focus ahead of a key interest rate decision by the Reserve Bank of Australia. Sterling rose 0.5 per cent to $1.9056. The greenback has now erased gains made after a solid US jobs, a worrying sign for dollar bulls. The dollar was already under pressure earlier in the session after Bank of Japan Governor said the central bank would raise interest rates pre-emptively to avoid sharp economic swings.
On November 8, the dollar was marginally higher but still within narrow trading ranges, as markets hesitated to take aggressive bets ahead of US trade balance report for September. Earlier, traders were focused on the outcome of the US midterm elections in which Democrats gained control of the House of Representatives and were moving closer to victory in the Senate. Overall however, the election outcome had marginal impact on the dollar and traders’ attention in the afternoon has shifted to the US economic fundamentals.
Traders awaited the US trade balance data for September, which was expected to show a deficit of about $66 billion, down from August’s record gap of $69 billion. The theme of ‘twin deficits’ (both budget and current account) has faded from the market’s focus as attention has shifted to monetary policy, but the huge structural negatives could re-assert themselves in the near future as interest rates in the US appear to be on hold for the next several months.
In late trading, the euro was up 0.1 per cent at $1.2758, off a six-week peak of $1.2819 hit on November 7 in a bout of pre-election dollar selling. Traders said $1.2750 on the downside was proving to be a major pivot for the single euro zone currency.
The dollar rose 0.1 per cent against the yen to 117.80 yen and was up slightly against the Swiss franc at 1.2510 francs.
The dollar earlier received a boost following tough talk on inflation from Chicago Federal Reserve President and news US Defence Secretary Donald Rumsfeld had resigned. Rumsfeld’s resignation coupled with a nation-wide victory for the Democrats suggested US defence spending could be up for review, a scenario that could foster fiscal discipline and support the dollar. Markets have also started to focus again on interest rates.
Sterling held steady versus the euro, with investors anticipating a Bank of England interest rate hike to 5 per cent and looking for clues on whether more tightening is likely in 2007. Against the dollar, sterling eased by 0.2 per cent to $1.9013 as market attentions moved away from the outcome of US mid-term elections, prompting an unwinding of the previous day’s dollar sell off. It was steady against the euro at 67.06 pence, in sight of the previous week’s 15-month high 66.67 pence and up around 2.5 per cent for the year-to-date. It held around 103.6 on a trade-weighted basis.
On November 9, the dollar dropped to a two-month low against the euro weakened by soft data on US consumer sentiment and China’s announcement that it had a clear plan to diversify its foreign exchange reserves. The dollar lurched lower after Chinese central bank governor Zhou Xiaochuan said China was “considering lots of instruments” to diversify its $1 trillion of reserves. The greenback earlier came under pressure after the University of Michigan’s consumer sentiment survey showed a decline in the headline index and a slight fall in inflation expectations.
The euro rose to a two-month high against the dollar to $1.2848 before trading back down to $1.2827, still up 0.6 per cent on the day.