However, the rupee failed to maintained its opening week’s firmness over the dollar on the third day of the week in review, due to high demand by the corporate sector. It shed three paisa on February 7 when the dollar traded at Rs.60.78 and Rs.60.80. On February 8, the rupee showed a marginal improvement, gaining of one paisa to trade at Rs.60.77 and Rs.60.78 versus the dollar.
On February 9, the rupee remained stable as the supply of dollars was sufficient to meet strong demand. It picked up one paisa and traded at Rs.60.70 and Rs.60.80 against the dollar. During the week in review, the rupee recovered four paisa against the dollar in the inter bank market. Dollar demand remained high but smooth dollar supply restricted sharp fall in rupee value.
The open market remained closed for business on February 5, being Kashmir Day holiday. Trading resumed on February 6. The rupee maintained its weekend firmness in relation to the dollar in the open market on the second day of the week, and posted fresh two paisa gain, changing hands against the dollar at Rs.60.75 and Rs.60.85 on easy supply of the greenback. At the close of last week, the dollar had traded at Rs.60.77 and Rs.60.87.
The rupee extended its firmness on the third day of trading and further gained five paisa, changing hands at Rs.60.70 and Rs.60.80 against the dollar on February 7. Upward trend in the rupee/dollar parity persisted on the third trading day. The rupee in the open market made a further recovery of two paisa, with the dollar trading at Rs.60.68 and Rs.60.78 on February 8.
On February 9, the rupee in the open market gave up its overnight firmness and shed two paisa, changing hands at Rs.60.70 and Rs.60.80 against dollar. This week, the demand for dollar was high but dollars comfortable supply position did not allow the rupee to make any sharp downturn in its value. On cumulative basis the rupee recovered seven paisa versus the dollar.
Against the euro, the week commenced on a positive note with the rupee picking up 28 paisa to trade at Rs.78.20 and Rs.78.30 on February 6, against previous weekend’s Rs.78.48 and Rs.78.58, as the single European currency slipped against dollar in the international markets. However, the rupee overnight firmness was short lived as the European single common currency rebounded on February 7, gaining 35paisa over the rupee. It traded at Rs.78.55 and Rs.78.65.
On February 8, the rupee continued its falling trend versus the euro. It further shed 20paisa and traded at Rs.78.75 and Rs.78.85. On February 9, the rupee weakened further by five paisa and traded at Rs.78.80 and Rs.78.90. During the entire week, the rupee lost 32paisa versus the European single common currency.
In the international financial markets, the yen strengthened on the week’s opening day on increasing investor concerns that Group of Seven finance ministers will take a tougher line on recent weakness in the Japanese currency at their upcoming weekend meeting. The dollar generally traded higher after a key measure of the US services sector came in stronger than expected, though gains were muted with investors taking some details in the report as not being completely dollar positive.
In late trading on February 5, the euro fell 0.3 per cent against the greenback to $1.2932, and sterling slipped 0.4 percent to $1.9596. The dollar was down 0.7 per cent at 120.29 yen. The yen was also up 0.5 percent against the Canadian dollar, 0.7 per cent against the Swiss franc and one per cent against the pound, according to Reuters data. Sterling fell against the euro and dollar after a survey showed Britain's service sector expanded at its slowest pace in four months, making a Bank of England rate hike this week still more unlikely.
On February 6, the dollar slipped against the yen as investors looked ahead to a Group of Seven meeting even as comments by the US Treasury chief suggested the United States was not too concerned by the yen's weakness. US Treasury Secretary told US lawmakers the yen's value was set by market fundamentals, which traders said suggested the government saw no problem with the Japanese currency's weakness. The yen edged down broadly after his comments, though not to session lows, before edging higher.
In late trading, the dollar changed hands at 120.10 yen, down 0.2 percent. Earlier, the dollar fell to a three-week low below 120 yen. The dollar slipped against the euro, mostly due to technical factors. The euro rose 0.4 percent against the dollar to $1.2978. Sterling was up 0.6 percent at $1.9707. Some of the gains in the euro were technical, analysts said. The Swiss franc, meanwhile, extended gains against the dollar. The dollar fell 0.7 percent against the Swiss franc, to 1.2401 francs.
On February 7, the yen lost ground against the dollar and euro amid increased expectations that Group of Seven finance ministers will not take a tough stance on the Japanese currency's weakness at their weekend meeting. A senior official at Japan's Finance Ministry said the yen could be discussed at the G7 gathering in Essen, Germany, but that it was unlikely to be the main subject of the talks.
That followed comments earlier this week by US Treasury Secretary who said the yen's value was set by market fundamentals, suggesting Washington does not have a problem with the Japanese currency's weakness.
In New York, the dollar had edged up 0.5 percent on the day to 120.65 yen. The euro gained 0.7 percent to 156.96 yen, rebounding further from three-week lows touched on February 6. With the markets focused on the yen, the euro rose 0.2 per cent against the dollar at $1.3011. Against the Swiss franc, the dollar gained 0.1 percent at 1.2413 francs. Sterling edged lower against the euro following weaker-than-forecast industrial output data and ahead of the Bank of England's interest rate decision. The pound was steady on the day at $1.9694.
On February 8, the euro advanced against most currencies after investors interpreted remarks from the head of the European Central Bank as signalling a rise in benchmark interest rates in March. But the dollar did strengthen against the yen ahead of a meeting of finance ministers from the Group of Seven wealthiest nations, after earlier speculation that the yen's weakness might be a focus of the meeting had fuelled a mild rally in the Japanese currency.
The focus of the day's trading was the euro after the ECB left rates unchanged at 3.5 per cent as expected, but ECB president repeated the phrase "strong vigilance" to describe how the bank will monitor euro zone inflation. The ECB has used the word "vigilance" in its statements every month before the six rate increases delivered since December 2005. Asked if the markets should understand the phrase to mean a rate rise in March, the ECB President said: "It speaks for itself."
In an accommodative monetary policy, euro zone interest rates have been relatively low, but the ECB has been working to combat inflation by gradually raising rates. The euro strengthened against sterling to 0.6658, up 0.8 per cent on the day. Against the Swiss franc, it rose 0.6 percent to 1.6246 francs.
Against the dollar, the euro was up 0.1 per cent at $1.3035. The yen again traded lower across the board.
The dollar rose 0.3 per cent to 121.05 yen while euro/yen was up 0.5 per cent at 157.84 yen. Sterling fell after the decision, as there were some expectations for a rate rise following the bank's surprise increase in January. The pound traded down 0.6 per cent on the day against the dollar at $1.9576.
At the close of the week on February 9, the yen closed in on a four-year low against the dollar and a record trough versus the euro before a Group of Seven finance ministers' meeting that is unlikely to seriously tackle the yen's weakness, investors said. The euro also drew support from comments from ECB president, who signalled that rates could rise in March and possibly later on in the year.
The ECB left rates unchanged at 3.5 per cent in the previous session. Market focus is on the statement that will follow the two-day G7 gathering. Some investors were also selling the yen ahead of a market holiday in Japan on February 12. The market is betting that the yen won't be included in the communique, which is why we're seeing buying in currencies against the yen.
Despite recent grumbling by European officials about yen weakness due to its paltry yield, few in the market expect the meeting's official statement to specifically address the Japanese currency, given that Japanese and US officials have played down the issue. However, caution may be needed over comments by European officials at news conferences after the meeting, said a senior economist at Mitsubishi UFJ Securities.
In Tokyo, the dollar was up 0.25 percent at 121.35 yen near the day's high at 121.41 yen hit on electronic trading platform EBS and inching towards a four-year high of 122.20 yen hit last week. The US currency has risen nearly 2 percent since the start of the year. The euro was up at 158.25 yen edging closer to a record high of 158.62 yen touched last month. Earlier in the session, it had climbed to 158.29 yen on EBS. The single currency was little changed at $1.3040.