Trading activity was almost standstill. In thin trading on May 14, the rupee shed eight paisa against dollar, changing hands at Rs60.56 and Rs60.57 after having closed previous week at Rs60.48 and Rs60.49. The dollar supply was also tight due to international market closure.
The rupee weakness over the dollar persisted on May 15, as it extended its overnight losses in the interbank market posting sharp fall of 15 paisa to trade at Rs60.73 and Rs60.75 against the dollar. The sharp fall in the rupee's value is attributable to dollars' strong demand by the corporate sector. Both the foreign and local banks bought nearly 70-80 million dollars to clear due payments.
On May 16, the rupee however, resisted fresh decline against dollar and recovered eight paisa, trading at Rs60.65 and Rs60.67. But the local currency overnight firmness over the dollar proved short lived, as the rupee hit nearly five-year record lows against the dollar on May 17, due to heavy demand by banks. It shed 13 paisa in a single day trading, changing hands at Rs60.78 and Rs60.80.
On May 18, no major variation was seen in the rupee-dollar parity in the interbank market. The rupee moved little against the dollar trading at Rs60.79 and Rs60.80, down one paisa on buying counter but remained unchanged on selling counter, due to balanced demand and supply of the US currency. During the week in review, the rupee on the inter bank forex counter lost 31 paisa against the dollar.
The open market remained closed on the first day of trading due to general strike in Karachi. The trading activity was almost nil due to the disturbances. The rupee had closed last week at Rs60.60 and Rs60.70 against the dollar. On the second day of the week in review, trading activity resumed. The rupee shed three paisa against the dollar on buying counter, while it did not show any change on selling counter. The demand for US currency was strong. The dollar was at Rs60.63 and Rs60.70 at close.
The rupee weakness persisted on the third day It declined against the dollar by two paisa on buying counter and another five paisa on selling counter to trade at Rs60.65 and Rs60.75. The rupee further extended its weakness versus the dollar in the open market on the fourth trading day and shed five paisa more against dollar trading at Rs60.70 and Rs60.80 on the fourth day. The rupee posted two paisa gain against the dollar in the open market, changing hands at Rs60.68 and Rs60.78 on the fifth trading day of the week in review. This week, the rupee in the open market shed eight paisa versus the dollar
Versus the European single common currency, the rupee had closed last week at Rs81.55 and Rs81.65. When trading resumed on May 15, the market registered strong demand for euro. As a result, the rupee lost 32 paisa in relation to the euro and traded at Rs81.87 and Rs81.97. On May 16, the rupee extended its decline against the euro, shedding 34 paisa and traded at Rs.82.21 and Rs.82.31.
However on May 17, the rupee managed to gain against the euro, recovering 39 paisa, changing hands at Rs81.82 and Rs81.92. the rupee extended its overnight gains versus the euro and recovered 19 paisa more on May 18. The euro traded at Rs81.63 and Rs81.73 on the fifth day of the week in review, as the dollar's gain in the international markets pushed the single European currency lower in the local market. Over the past week, however, the rupee managed to gain 27 paisa against the euro this week.
In the international financial market, the dollar edged lower against the euro on May 14, ahead of US inflation data and a series of speeches from Federal Reserve officials that could yield clues on whether a cut in US interest rates is likely this year. The euro crept higher across the board, tracking a rise in euro zone bond yields, which hit multiyear highs on a view that the European Central Bank will raise rates at least once more this year.
But the dollar posted modest gains against the yen, and was little changed against an index of six major currencies, with overall trading subdued ahead of April report on consumer prices in the United States. In New York, the euro was up 0.1 per cent at $1.3545, within a couple of cents of an all-time peak above $1.3680 set in April, and was also up 0.3 per cent at 162.95 yen, within sight of another record high set this month. The dollar was up 0.1 per cent at 120.35 yen, but still short of a two-month high above 120.50 hit last week.
On May 15, the dollar fell across the board after a report suggested US inflation was well contained in April, backing a view that the Federal Reserve will likely cut interest rates later this year. The euro's surge against the dollar also helped push it to a fresh record high against the yen. The euro has gained across the board over the past two months on expectations that euro-zone interest rates will continue to rise.
The euro last traded up 0.35 per cent at $1.3590. One trader said the currency got a boost from European investors repatriating their share of the US Treasury's quarterly payout of more than $20 billion in coupons. In contrast the dollar has suffered from a view that the Fed will likely cut interest rates from the current level of 5.25 in the second half of this year to shore up an economy growing more slowly than the rest of the industrialised world.
The currency's rise gained momentum after automatic buy orders were triggered above $1.3560, traders said. That helped the euro rise to a peak of 163.67 yen, the highest since the launch of the common European currency in 1999. It later retreated to 163.45 yen. The dollar was little moved against the yen, trading down around 0.1 per cent on the day at 120.23 yen. The greenback touched 120.59 earlier in the session, its highest in almost three months, in the wake of soft Japanese machinery orders data.
Sterling hit a one-month low versus the dollar. The unexpectedly high March figure had sent sterling soaring to 26-year highs versus the dollar beyond the psychologically key $2 level, and forced Bank of England governor to write an explanatory letter to the Chancellor. The pound edged lower on the day versus the dollar to $1.9780, recovering from an earlier dip to a new one-month low of $1.9749.
On May 16, the dollar rose for the first time in four sessions and hit a three-month high against the yen after reports showed unexpectedly strong growth in US housing starts and industrial output last month. In late trade in New York, the euro was down 0.55 per cent at $1.3515, posting its biggest daily drop in more than two months and well short of a record peak of $1.3683 hit last month. The dollar rose 0.35 per cent to 120.65 yen after touching 120.83 yen. That was the highest since February 26, a day before the dollar plunged almost 3 yen because of a big shakeout in carry trade positions.
The dollar has slumped across the board this year, declining almost 2 percent against a basket of major currencies as faster growth abroad has reinforced a view that the dollar will continue to lose its allure to yield-hungry investors. Sterling fell against the dollar as the Bank of England's inflation report gave no confirmation that British interest rates would rise again. The pound had fallen to the day's low of $1.9805, down 0.2 per cent on the day.
On May 17, the dollar held near a three-month high against the yen after a regional survey showed an unexpectedly large rise in US business activity, backing a view that interest rates will stay on hold for some time. The dollar was up 0.45 percent at 121.30 yen in New York, after earlier touching 121.37 yen, its highest level in around three months. The euro was trading down 0.2 per cent on the day at $1.3495, almost 2 cents below a record-high struck last month.
The currency made several attempts to break below $1.3480, where traders said big buyers were blocking its fall. It fell as low as $1.3477 initially, but quickly rebounded. The dollar has declined around 1.7 percent against a basket of major currencies this year, driven by expectations that US interest rates will decline while economies overseas grow faster, sending interest rates higher in Europe and elsewhere.
Downward pressure on the euro allowed sterling to reverse earlier losses against the single currency. The pound was down 0.17 per cent on the day at $1.9741. Some analysts are predicting further weakness in the pound, which has weakened since hitting 26-year highs above $2.01 in April when data showed inflation had hit 3.1 percent in March. Since then, April data has shown that inflation eased back to 2.8 percent and average earnings growth unexpectedly slowed.
At the close of the week on May 18, the dollar matched the previous session's three-month high against the yen after data showed a strong rise in regional US business activity, backing a view that US interest rates will stay on hold for some time. The mood in the market seems to be to try for new highs in the dollar. By the end of the month, the dollar could rise above a four-year high of 122.20 yen hit in January to levels around 122.50 yen, the trader said.
The euro slipped slightly to $1.3484 edging towards a one-month low of $1.3462 hit late last week. Against the yen, the euro was a bit lower at 163.53 yen holding near a record high of 163.90 yen hit earlier this week. Sterling hit a one-month low against the dollar. The pound was down 0.1 per cent against the dollar at $1.9757, having sagged as low as $1.9702, a level last seen on April 10.