The State Bank of Pakistan's decision not to drain the liquidity is putting pressure on the Pakistani rupee. The rupee's fall started from the beginning of last session of 2003-04 financial year as banks accelerated dollar-buying from open market to clear their payments.
In May last year, the rupee was available at Rs57.44, but this week the parity was quoted at Rs58.26, depicting a fall of 82 paisas in the inter bank market. At one stage this week, the rupee in the interbank market had touched its low versus the dollar at Rs58.32, while it has already crossed Rs58.50 in the open market.
A weekly review of the rupee/dollar parity trend in the local currency market reveals that the dollar crossed an important mark of Rs58.20 in the inter bank market on the week's opening day, as increased buying in the greenback built further pressure on the rupee.
Remaining under pressure the rupee traded at Rs58.18 and Rs58.20 against the dollar on July 5. On July 6, the rupee touched the new low at Rs58.25 in the interbank market, as the dollar picked up five paisas versus the rupee and traded at Rs58.24 and Rs58.25, amid modest trading, on the persistent rise in demand in the absence of the SBP intervention.
On July 7, the rupee resisted further decline in its overnight levels and changed hands at Rs58.20 and Rs58.22 versus the dollar. The dollar on July 8 was mostly unmoved versus the rupee.
It was quoted in the interbank market at Rs58.21 and Rs58.22. The greenback was not able to gain further following the banks' dollar selling. On July 9, the rupee hit nearly one-and-a-half-year low versus dollar, losing six paisas at Rs58.26 and Rs58.28.
High corporate demand and debt payments kept the rupee under pressure. Since the start of the new fiscal year, the rupee has lost 16 paisas versus dollar. In the week under review, the rupee in the inter bank market lost 8 paisas versus the dollar.
Excessive dollar buying in the interbank market tumbled the rates in kerb trading. The week commenced on a negative note, as the rupee lost five paisas for buying at Rs58.50 and three paisas for selling at Rs58.58, on July 5. There was more demand than supply.
Investors were not willing to sell dollar holdings preferred to hold dollar stocks, anticipating more rise in its value. On July 6, the rupee-dollar parity in kerb was almost stable. It stayed unchanged at Rs58.50 and Rs58.55 despite heavy dollar buying by the interbank market.
On July 7, the rupee managed to hold ground. It did not show any weakness by holding its prevailing levels in relation to the dollar changing hands at Rs58.50 and Rs58.55.
On July 8, the dollar showed a little bit weakness in terms of the rupee, which managed to recover two paisas over its overnight levels to trade at Rs58.48 and Rs58.53. the rupee came under heavy pressure due to interbank dollars buying and did not show any change in its overnight levels at Rs58.48 and Rs58.53 on July 9.
Later in the day, however, the rupee reversed its weakness, recovering 18 paisas following banks' dollar selling to arrest the greenback's artificial gain. The banks injected dollars on the direction of State Bank of Pakistan (SBP) in the open market to ease pressure on the rupee but they expected that this relief could be short-lived following the extended dollars' demand from the interbank market. The rupee in the kerb, however, recovered 15 paisas versus the dollar this week.
On the back of dollar's fall in world markets, the euro went up sharply and crossed Rs72 level at the start of the week, but at close on July 5, it trimmed early gains to show 15 paisas slide for buying and selling at Rs71.55 and Rs71.85.
Again on July 6, firmer trend in the overseas markets boosted euro in local market, and the rupee lost 10 paisas versus the European single common currency changing hands at Rs71.65 and Rs71.95.
Getting a boost from the overseas market on July 7, the single European currency managed to keep its upper hand versus the greenback. It recovered five paisas against the rupee and traded at Rs71.70 and Rs72.00.
On July 8, the euro continued its surge versus the rupee, gaining 10 paisas for buying and selling at Rs71.80 to Rs72.10. Rising fears about terrorist attacks on the United States and fresh rise in world oil prices has pushed the dollar at four-month low versus euro.
Consequently, the rupee slid further versus the euro, losing 15 paisas on July 9, to trade at Rs71.95 and Rs72.25 on expanding its grounds globally. Over the previous weekend close, the rupee in the week under review depicted a fall of nearly 20 paisas against the euro.
On the international front, financial centres in the US were closed on account of US Independence Day Holiday on July 4. In Tokyo market, the dollar smarted on July 5 after taking a beating previous week close due to unexpectedly weak US jobs data, but currencies moved in narrow ranges ahead of a market holiday in the United States.
As the dust from last week's barrage of crucial economic events and data began to settle, the dollar remained under pressure versus the euro, but recouped some of its losses against the yen thanks to easing Japanese stock prices.
The US currency plunged more than one percent against the yen and almost 1.5 per cent versus the euro last weekend after the US data showed a that 112,000 new jobs were created in June, far below market forecasts for an increase of 250,000.
The dollar was at 108.78 yen, up from around 108.32 yen in late New York trade. It fell as low as 108.05 yen over the weekend. Market players expect the dollar to move between 107 and 109.5 yen this week. The euro was fetching $1.2319, gaining a touch from $1.2314 in late US trade.
The euro earlier hit a 3-1/2 week high around $1.2330. As a result, the market was tuned into whether the euro would test $1.2350, a key level that, it breached, could sent the euro as high as $1.25 before staging a correction.
Sterling bounced back against the euro and hit a two-week high against the dollar as data reinforced the view that interest rates in Britain would rise more quickly than elsewhere. The pound rose as high as $1.8364 - its highest since June 21 - before paring gains to stand at $1.8328 in late London trade.
However, in London on July 6, sterling jumped three quarters of a percent on the day to 4-week highs against the euro after stronger than the expected UK output data boosted rate rise expectations for later in the year.
British manufacturing output grew for the second month in a row in May, rising at its fastest annual rate since October 2003 at 2 per cent. It soared to $1.8437, its highest level since June 11, and was trading at $1.8415. It also strengthened by half a per cent to 2-day highs of 66.80 pence per euro, a rise of three-quarters of a per cent from 6-weeks lows set on last week.
The dollar fell against the euro on July 6 as investors bought the European currency after a weaker-than-expected monthly report on the US services sector. It lower against major currencies in thin trading after the Institute for Supply Management's services headline index came in softer than forecast, although the report showed elements of strength in new orders and jobs.
By mid-morning in New York, the euro traded up 0.1 percent against the dollar at $1.2304, within sight of four-week highs above $1.2330 hit overnight. The dollar has been under pressure against most major currencies.
Traders say the market has taken the view that the US economy likely slowed at the end of the second quarter. Earlier the news that German unemployment fell unexpectedly in June provided a positive backdrop for the euro. But strong technical resistance at $1.2350 proved difficult to break.