The Pakistani rupee maintained a firm stand against the US dollar in the first week of January. There was excessive supply of the US currency in the market. In the inter-bank market the rupee gained 11 paisa against the greenback for buying and selling at Rs58.23 and Rs58.24 respectively.
On the opening day of the second week of the month the rupee gained further and maintained this firmness at Rs58.20 for buying and Rs58.22 for selling for the next two days. On January 8, as buying of dollars by foreign and local banks increased to cover short term needs the rupee weakened and shed seven paisa for buying and selling at Rs58.27 and Rs58.29 respectively. Major foreign and local banks bought nearly $20-$30 million to cover Hubco payments. This rate was maintained for the next two days.
In the kerb market, at the beginning of the week, the rupee gained against the dollar, rising four paisa at Rs58.05 and 10 paisa for selling at Rs58.10. On January 9 in the kerb market, the rupee failed to maintain its firmness, shedding five paisa for buying at Rs58.10 and 10 paisa for selling at Rs58.20 respectively. There was some increase in demand for the US currency, which forced the rupee to give up its previous gains.
In the week, the euro gained, on the back of rising demand in the international market. The Pakistani rupee first lost 25 paisa against the euro for buying and selling at Rs60.65 and Rs60.95 respectively. On January 7, the local currency recovered 30 paisa for buying and selling at Rs60.35 and Rs60.65 in the process of trading. On the back of rising demand in the international market, the euro jumped and gained 65 paisa in relation to the rupee for buying and selling at Rs61.00 and Rs61.20.
On January 10, the Pakistani rupee managed to recover five paisa for buying and selling at Rs58.22 and Rs58.25 respectively. Dealers expect the rupee to strengthen further due to good dollar inflows in the form of remittances from overseas Pakistanis and export led sales. In the kerb market the rupee did not show any change in relation to the dollar.
In the international market, the dollar fell in London by one per cent against the yen, euro and Swiss franc as signs of the US military buildup in the Gulf put the US currency on a downhill.
Dollar-selling was broad-based with the US currency nursing losses of more than one per cent against the Australian dollar and hitting its lowest against the British pound since February 2000. It also fell more than half a per cent to $1.0490 per euro, a whisker away from last week’s three-year low.
The dollar is vulnerable to mounting war fears as international capital flows tend to slow when risk aversion rises, making it harder for the United States to fund its huge current account deficit. Some investors fear at the US-led war with Iraq could also lead to reprisals against the US interests. On the first day of the week, the pound hit its highest level for nearly three years against the dollar, as the greenback was hit by ongoing concerns of US-led military action against Iraq. But sterling slipped against the euro as the single currency gained from dollar weakness and as the UK data showed growth slowing in the services sector. The pound rose to $1.6160, its strongest level since February 2000.
In the New York market, the geopolitical conflict kept the dollar under pressure on January 6 and it fell against all major currencies as traders braced themselves for the possibility of a US led war against Iraq. Although recent data has been all but drowned out by the persistent drumbeat of war.
In late US trading, Europe’s common currency traded near $1.0465 against the dollar up half a percent from its prior US close and less than half a cent from last week’s 3-year high. The Swiss franc gyrated within view of its strongest level in nearly 4 year against the dollar trading around 1.3915 francs and up 0.45 per cent on the day. Sterling reached a near 3-year high against the US currency but fell on profit-taking to stand at 1.6080 unchanged from its prior US close.
The dollar’s weakness against the yen raises the prospects of Japan selling yen in global markets in order to stem its currency’s strength, which undercuts global demand for its exports and erodes the profits of Japanese exporters. In the New York market, on January 7, the dollar rose helped by President Bush’s proposed $674 billion stimulus package to help reinvigorate the US economy. The package proposed a wide array of tax cuts, the centrepiece of which calls for the elimination of taxes on dividends paid by investors. It also includes accelerating tax relief initially passed in 2001.
It remains to be seen whether the plan will be passed in its entirety, or whether it will provide the instantaneous boost many economist say the economy needs the US budget deficit and particularly the current account deficit - now nearly 5 per cent of US gross domestic product - are becoming increasingly important variables for the dollar’s fate.
People don’t think (investment) flows add up for 2003, so the US will have a funding gap regardless of Iraq, which include exacerbate the situation. That is why the market has been shorting the dollar the last three month, said Greg Anderson, senior foreign exchange analyst at the ABN AMRO in Chicago. Those fears have fed into a month-long spiral that last week bought the dollar to multiyear lows against all major European currencies, and foisted it to a 4-month low against the yen.
In the London market, the dollar get some reprieve and rose against recent lows against the euro and the yen. The dollar was at $1.0375 to the euro, more than a cent above earlier week’s three year lows.
On January 9, the dollar sank to its lowest level against the euro since November 1999 in the New York market as concerns rose about the US currency’s longer-term outlook.
The dollar fell sharply against the Swiss franc, which customarily sees heavy demand in times of geopolitical instability. The dollar traded near 1.3875 francs, down 0.75 per cent from its prior US close and fractionally above a 4-year low at 1.3805 francs.
In the London market, the dollar extended losses to a three year low on the euro and approached a four year trough on the Swiss franc on January 9, as the renewed Wall Street weakness and war fears kept up the pressure on the greenback.
In the New York market, the dollar rose against the euro and yen towards the end of the week, partly underpinned by a rally on Wall Street. The dollar found a respite from selling pressure that had brought it to a 3 year low against the euro.
In the London market, the yen fell to its lowest against the euro since July 1999 on January 10, the euro hit 126 yen in Asia for the first time in 3-1/2 years after North Korea announced its withdrawal from the treaty and was trading near there in the European session. The dollar also took advantage of the yen’s slide, pulling away from recent four-month lows to push briefly back above 120 yen, but it couldn’t keep pace with the euro. The dollar was trading up over a third of a per cent on the Japanese currency in Europe.