THE terrorist attack on the World Trade Centre and Pentagon, followed by the US attack on Afghanistan, and the subsequent developments on the economic front has build up selling pressure on the dollar and the value of dollar in respect of the local currency has been on continuous decline since Sept 11.
The situation has helped the rupee to gain firm grounds in the interbank as well as kerb markets. Last week additional positive factors emerged on the economic front following the removal of sanctions and debt waiver reports, which helped the rupee to hold its firmness over the dollar.
In the interbank market, the rupee opened the week on October 22, on a positive note, amid panic-dollar-selling by some local as well as foreign banks. The rupee gained 30 paisa over the dollar to trade at Rs61.70 and Rs61.80 against the previous weekend close of Rs62 and Rs62.10. While panic-dollar-selling continued on October 23, the rupee gained 10 paisa more against the overnight levels and traded at Rs61.60 and Rs61.70 versus the dollar. Slight increase in demand on October 24, pushed the rupee down by 10 paisa against the dollar which traded at Rs61.70 and Rs61.75. The rupee remained stable at this level for two days as the dollar selling subsided for a brief inter; unchanged at Rs61.70 and Rs61.75 on October 26, an appreciation of 35 paisa over the previous weekend close.
Against other major currencies, the rupee at the interbank forex counter gained further ground versus the British pound, German mark, euro, Japanese yen, Canadian, Australian, New Zealand, Hong Kong and Singapore dollars, Swedish krona, Dutch Builder Danish and Norwegian krones, Swiss, French and Belgian francs, Italian lira, Austrian schilling, Spanish peseta, Chinese yuan, Malaysian ringgit and Kuwaiti dinar. It recovered from last week losses and showed gains versus Saudi and Qatari riyals and the UAE dirham.
The parity witnessed a similar trend in kerb dealings, where smooth dollar supply helped the rupee to gain 45 paisa over the dollar on the opening day of the week. The dollar traded at Rs62 and Rs62.15 on October 22, against the previous weekend’s levels of Rs62.45 and Rs62.60. This upward trend persisted in the following two days. On cumulative basis the rupee gained 40 paisa for buying and 45 paisa for selling during these two days. At the close October 24, the dollar was trading at Rs61.60 and Rs61.70. However, slight increase in dollar demand on October 25, pushed the rupee down. It lost 20 paisa for buying and 25 paisa for selling to trade at Rs61.80 and Rs61.95. Despite this reversal, the rupee had gained 65 paisa over the previous weekend.
At the close of the week on October 26, the rupee maintained its firmness and Bed 5 paisa more amid slow activity. The dollar traded at Rs61.75 and Rs61.85 at close, depicting an appreciation of 70 paisa for buying and 75 paisa for selling over the previous week. The rupee has however, depreciated by 130 paisa since January this year.
Currently the gap between the interbank market rates and kerb trading is only 10 paisa. This gap had ranged between Rs2-3 in recent months. It had touched Rs8, soon after the nuclear detonation in May 1998. Most currency analysts predict the current trend in the rupee-dollar parity to persist with minor fluctuations both in the interbank market as well as kerb trading. Some analysts are, however, of the opinion that the market sentiments have changed completely since the September 117 developments and so it is difficult to predict for the coming weeks.
On the international front, the dollar hit post-attack highs against the euro and rose against most major currencies in New York on October 22, as investors leaned toward the possibility the United States will recover first among economies caught in an economic downturn. The US economy was slowing sharply before the September 11 attacks, and is now likely to fall into recession, the economists say.
The euro looked vulnerable as the market began to factor in concerns that the September attacks on the United States could affect euro-zone economies to a greater extent than initially believed. People have grown a bit tired of selling dollars on anthrax woes, and realized instead that they have not taken into account enough the US attacks’ impact on the euro economies.
In London, sterling sank to its lowest in more than two months against the dollar as traders warned to the view that the US economy offered superior longer-term returns. The pound has now shed more than five cents against the dollar in the last two weeks, notching up its steepest losses since early June. Sterling was down half a per cent at session lows below $1.4270, lowest since mid-August. But the pound was up against the euro at day’s highs around 62.45 pence. The indicated that broad-based dotter strength was driving price action rather than UK specific factors.
On October 23, growing optimism that the US economy will putt itself out of a global economic downturn before its peers is helping extend the dollar’s rally in New York to fresh multi-week highs against the yen and euro. Fundamental economic issues, such as the slashing of short-term US interest rates 400 basis points this year and $100 billion in new government spending plans winding their way through Congress, are contributing to the optimism and the dotter’s buoyancy.
The euro is making back some ground, rising from a fresh six week low of 88.70 cents to trade near 89.12 cents, still a loss of 0.10 per cent compared to the previous New York close. Sterling felt to a two-month low of $1.4199, a loss of 0.30 percent on the day. The dollar made a fresh 10-week high against the Japanese yen, climbing to 122.94 yen, before easing back to 122.68 yen, a gain of 0.20 per cent on the day.
The dollar kept its buoyant tone in Asia after bouncing to pre-attacks levels offshore on the growing view that the United States will be the first to recover from the global economic downturn. The turnaround in dotter sentiment comes against a backdrop of deepening economic gloom in Europe and Japan. The dollar rose on a broad (price) correction after a month of bearish sentiment, the dollar fell as far as below 116 yen after the attacks and remained fragile despite repeated currency interventions by Japanese monetary authorities.
The pound was knocked to two-month lows against the dollar for a second straight day in London on mounting confidence that the US economy will be the first to spring back from the global slowdown. But sterling held its ground against the euro, which felt even faster against the resurgent US currency.
Sterling fell to lows just below $1.42, its poorest showing since mid-August. It stood around 62.55 changed on the day. The dollar was on the offensive against major currencies, hitting around six-week highs against the euro and set 10-week peaks versus the yen. Sterling has retreated nearly five per cent from eight-month peaks set against the dotter at the start of the month.
In New York, the dollar’s eight-day march higher against the euro on growing optimism for the US economy was halted on October 24, as investors took pause following new cases of anthrax. The euro rose as far as 89.44 cents, its best levels since October 22 and a recovery of nearly a cent from the previous session’s six-week lows, before easing to around 89.15, a rise of 0.17 per cent. The euro also gained 0.35 per cent to its highest in nearly a week against the yen at 109.48, which helped take the dotter to the day’s highs around 122.88 yen, a quarter yen below 10-week highs seated on October 23.
In Tokyo, the dollar found support in Tokyo. Tempering a rise in the dollar was news the death toll in the United States from anthrax sent through the post rose to three, and traces of the germ warfare agent turned up at a military screening centre for mail bound for the White House.
The dollar held a tight range in Tokyo at 122.55/60 yen from 122.51 in late offshore trade and a fresh two-month high of 123.05 overnight. The euro was slightly better at 89.12/17 cents from 89.06 cents offshore, having dipped to a low of around 88.70 cents in offshore trade. Against the yen, the euro stood at 109.15/26 yen compared with 109.18.
Sterling felt a quarter of a percent against the dollar and double that against the euro in London following news that British business confidence plunged in the wake of the September 11 attacks on the United States. It was mired near the day’9 10WB around 62.70 pence per euro. If fully reversed early gains against the dollar to trade near session lows around $1.4225, taking it within a quarter percent of two-month troughs set a day earlier.