Dollar staged a slight recovery in the inter-bank market this week amid thin activity. Rise in dollar demand from corporate sector helped the US currency gain some ground versus the rupee but due to sufficient inflows the rupee managed to restrict any sharp rise in dollar value and limited the decline in its value in a narrow range.
When the inter-bank market resumed trading on January 20, the rupee showed almost a stable trend trading at Rs58.11 and Rs58.13 against the dollar. Slight decline in rupee over the previous weekend’s level was due to limited dollar supply because of the closure of US currency market.
The parity continued its declining trend in the next four trading session due to active dollar buying by the banks. In three days trading the rupee was seen losing 5 paisa against the dollar. The dollar was quoted at Rs58.16 and Rs58.18 on January 23. The week closed almost unchanged at Rs58.15 and Rs58.17 against the dollar on January 24, against Rs58.10 and Rs58.11 in the previous week.
In kerb dealings, the rupee-dollar parity continued unchanged at Rs58.0 and Rs58.10, after rupee shed 5 paisa against the dollar on the week’s opening day. No major development was noticed in the week. People not interested in dollars were heavily investing in euro. The European single currency remained volatile, as currency traders continued to invest in it. The rupee, in the kerb had opened the week on a positive note on January 20. It gained 25 paisa against the euro in the first two days trading and touched the week’s highest level at Rs61.65 and Rs61.95 on January 21. But due to increase in euro demand the rupee failed to maintain its upward trend and lost 80 paisa in the remaining four trading sessions touching its lowest level at Rs62.45 and Rs62.75 on January 24.
Present trend is likely to persist as the dollar continues to be under pressure since the surge in US-Iraq war tension. The international currency market is waiting for a key report by the UN weapons inspectors due on January 27, and State of the Union Speech by the US President scheduled for January 28, which many fear could turn into a call to arms. The worries teat the United States was attack Iraq soon despite growing opposition among its key allies and some other countries have pushed dollar to multi year lows against European currencies.
Meanwhile, the rupee at the inter-bank counter, also weakened against most major currencies. During the week, it extended losses versus the British pound, Canadian, Australian, Hong Kong and Singapore dollars, Swiss franc, Danish krone, Swedish krona, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and the UAE dirham. It gained ground versus the Norwegian krone and was unchanged against Japanese yen and New Zealand dollar.
In the international financial market, the prospects for war in Iraq have dominated financial market movements for weeks, leaving the dollar vulnerable as the United States is seen footing much of the bill for a war that would be a drag on an already sluggish US economy.
Currency market movements were amplified by the closure of US financial markets in observance of the birthday of slain civil rights leader, Martin Luther King Jr, the dollar slipped to a new three-year low against the euro in thin holiday trade on January 20 after the United States reiterated its hard-line stance that Iraq must rid itself of weapons of mass destruction.
The euro reached $1.0694 surpassing last weekend’s three-year high before slipping back to $1.0676, up just 0.10 per cent from the previous New York close. The euro’s strength against the dollar is starting to draw attention to its potential harm on the euro zone economy. The euro’s climb has added to worries about the euro zone’s anemic economic growth because its strength makes the bloc’s exports less competitive. The dollar held steady to settle at 1.3683 against Swiss francs, up slightly from last week four-year low of 1.3662 francs.
The euro climbed to a 3-1/2 year high of 126.22 yen before easing back to 125.98 yen, a gain of 0.36 per cent on the day. The dollar rose against the yen as investors grow nervous Japanese authorities might follow through on numerous warnings to weaken the yen by taking advantage of the thin trading conditions. The dollar, which hit a four-month low below 117.40 yen last week, held at 118.02 yen, up 0.25 per cent.
Sterling sank to a 3-1/2 year low on the euro and lost over a cent and a half from recent three-year highs against the dollar as the market grew wary ahead of key economic data this week. The euro advanced as far as 66.46 pence, and was trading down a third of a per cent. The pound also took a tumble against the US dollar, bottoming out at $1.6039 — well off the three-year high of $1.6198 it hit on January 17.
Intensified war rhetoric from US President George W. Bush, prompted jittery investors to sell the dollar to a new three-year low against the euro on January 21. But the dollar held diminished gains versus the yen because investors did not want to test Tokyo’s resolve to weaken its currency if it grew too strong and further impeded exports, the one area of Japanese economic strength. The dollar slumped against the euro and Swiss franc on Bush’s comments, with selling momentum building as the trading day wore on. For the fourth day in a row, the euro hit a three-year high, at $1.0734, a gain of roughly 0.50 per cent from previous day’s New York close.
The dollar hit a four-year low against the Swiss franc for the third day out of four, hitting 1.3611 francs before rising back to 1.3630, a loss of 0.31 per cent on the day. The Canadian dollar rose after the Bank of Canada made it clear it wanted to raise interest rates in the future, even as it announced no rate change. The dollar fell 0.19 per cent versus the loonie at C$1.5319. The yen’s 6 per cent advance versus the dollar since early December on war concerns and how war could negatively affect capital flows into US assets has led to a three-year high net long yen futures position among speculative traders.
Late in New York trade, the dollar hovered near 118.15 yen up 0.14 per cent on the day. Following the Bush comments, the euro extended its gains versus the yen to a fresh 3-1/2 year high of 127.03 yen a rise of more than half a per cent on the session. The euro benefited from a sharp rise in Germany’s ZEW Institute’s sentiment index, the first gain in seven months. Sterling pulled back from the previous session’s 3-1/2 year low versus the euro helped by reasonably supportive economic data and upbeat comments by bank of England Governor Sir Edward George.