TRADING in currencies remained sluggish in the inter-bank market as well as in the kerb. Few investors were seen taking active part in the trading. Heavy inflows of dollar, particularly from Pakistani expatriates, ahead of Eid-ul-Fitr and improved scenario on foreign aid front are having a positive impact on the rupee.
Besides, improved foreign exchange reserves and narrowing of trade deficit have also released pressure on the rupee and helping in its strong recovery.
In the inter-bank forex market the rupee opened the week unchanged against the dollar, trading at Rs60.80 and Rs60.85 on December 3, amid low dollar demand and its high supply. On December 4, the market witnessed minor variation in the rupee/dollar parity. Though the dollar remained weak the rupee slipped 5 paisa on slight buying pressure. The dollar traded at Rs60.85 and Rs60.90 during the day. There was a marginal rise in dollar demand on December 5, but the rupee managed to hold its overnight level showing no change.
Strong rupee exerted pressure on dollar, which weakened further on December 6, the rupee gained 22 paisa in a single day trading to trade at Rs60.62 and Rs60.68 against the dollar. On December 7, the rupee gained another 4 paisa for buying and 8 paisa for selling against the dollar, which traded at Rs60.58 and Rs60.60, soon after the release of the news that the IMF has approved $1.3 billion loan under the PRGF.
Against other major currencies the rupee at the inter-bank forex counter, gained ground over German mark, euro, Canadian, Australian, New Zealand and Singapore dollars, Swiss, French and Belgian francs, Dutch guilder, Italian lira, Japanese yen, euro. Danish and Norwegian krones, Austrian schilling, Spanish peseta, Chinese yuan, Malaysian ringgit, Kuwaiti dinar, Saudi and Qatari riyals and the UAE dirham. The rupee, however, weakened against the British pound, Swedish krona and Hong Kong dollar.
A similar situation was observed in the kerb, where the rupee opened the week on a positive note. Relatively strong supply and low demand for dollar on December 3, helped the rupee gain 10 paisa for buying and 20 paisa for selling over the previous weekend close. The dollar traded at Rs61.0 and Rs61.10 during the day. Slight improvement in demand on December 4, however, pushed the rupee down by 5 paisa, with the dollar trading at Rs61.05 and Rs61.15. But this proved short-lived as strong dollar supply helped the rupee to recover 25 paisa in a single trading session on December 5, when the dollar in the kerb traded at Rs60.80 and Rs60.90, just 5 paisa below the inter-bank rate for buying. Strong rupee gained another 40 paisa on December 6, amid low dollar demand forcing the dollar trade at Rs60.45 and Rs60.55, up to 17 paisa below the inter-bank rate. But by the close for the week its failed to hold ground and lost 15 paisa to trade at Rs60.60 and Rs60.80 on December 7. There was some buying pressure after the news of approval of $1.3 billion IMF loan under the PRGF.
The rupee in likely to remain strong in coming days. Some analysts are of the opinion that the dollar might touch Rs59 barrier before the year end. Attempt will however, be made to stabilize the rupee at Rs60. In the week as a whole, the rupee has appreciated by 70 paisa for buying and 50 paisa for selling in the kerb. It has also appreciated by 22 paisa for buying and 25 paisa for selling in the inter-bank market.
On the international front, markets seem in a holiday mood. In Tokyo, the greenback inched up to 123.63 yen on December 3 compared with around 123.37 on previous week in New York. It touched a high of 123.76 earlier in the afternoon. The dollar’s rise was hampered by worse-than-expected economic data revealed last week, casting a pall over market sentiment and focusing even more attention than usual on this week’s batch of new data.
Sterling recovered a third of a per cent from eight-week lows set against the euro earlier in London as general weakness in the single currency outweighed fresh evidence of a slowdown in the British economy. The pound came under pressure in early trade after one survey showed the UK growth slowdown has spread deeper into the previously robust services sector, while another report showed manufacturing activity at its worst levels since early 1999.
The pound stood at 62.75 pence per euro compared with lows set earlier around 63 pence. Against the dollar, sterling stood just below $1.42, down slightly from previous week’s New York close. The euro was trading around $0.8915, more than half a per cent below two-week troughs set against the dollar in the wake of a sharp downward revision to the US economic growth in the third quarter.
On December 4, the yen dipped briefly in Tokyo after Monday’s became the third major ratings agency to cut its assessment of Japan, lowering local-currency debt to Aa3 from Aa2 as had been widely expected in financial markets. The dollar scrambled up to 124.38 yen on the news but soon drifted to around 12404, where it stayed until late trade, a s dealers had seen the rating cut as only a matter of time.
The yen wavered slightly against the dollar once again after the release of Bank of Japan Policy Board minutes, which showed one member had suggested the central bank buy foreign bonds. The euro remained solid throughout the day, standing at around $0.8900 in late Tokyo, after shying away from $0.8950 in the face of improved US economic indices. The dollar was particularly relieved by a rise in the US National Association of Purchasing Management’s index to 44.5 in November, though analysts had expected a bounce after the plunge to decade lows of 39.8 in October. Against the yen, the euro wavered around 110.41 yen on December 4, having hit one-month highs around 110.80 on December 3.
In London, sterling was trapped in tight ranges as dealers shrugged off upbeat news on Britain’s consumer sector and sat tight ahead of a series of interest rate decisions. Sterling stood at 62.60 pence per euro and $1.4235, virtually unchanged from New York close. The euro rose to a two-month high of 110.89 from 110.56 in late New York. Against the dollar, the single currency edged up to $0.8929 from $0.8898 thanks to buying by a German bank earlier. The dollar was steady against the yen to 124.20 in thin trading.
On December 5, the dollar was well-supported against the yen in Tokyo on a mostly dismal set of Japanese economic figures. The moving in a constrained range of 124.10 to 124.31 yen, showed a mixed reaction to remarks from a top Japanese politician about foreign bond purchases by the bank of Japan, an issue that has helped the greenback versus the yen recently. The dollar was quoted at 124.17/21 yen, little changed from the late New York level of 124.22 yen, but marginally up from around 124.10 yen in late Tokyo on December 4.
The euro edged up to around $0.8930 from about $0.8910. Dealers noted a big German name buying the euro against the dollar actively, but saw no fresh news behind the move. The euro stood at $0.8919/27 and 110.71/78 yen, rising from an offshore low of 110.14 yen.
The pound fell a third of a per cent the dollar in London after better than expected US services data compounded losses which started after the Bank of England left interest rates unchanged at 4.0 percent. The pound was trading at $1.4168, and at 62.67 pence to the euro. The dollar also shot up nearly half a cent against the euro.
On December 6, the dollar jumped to a four-month high against the yen in Tokyo, propelled in part by the latest Japanese corporate failure. Having hit a layer of stop-loss dollar buying orders, the dollar hit a high of 124.79 yen, its highest level since August 1 and up more than one yen from a session low of 123.75 yen. Dealers say the dollar’s move was exaggerated as the market was caught short after selling it down to 123.75 earlier, but a break of a former rally high at 124.59 on July 30 was technically bullish.
The yen was also sold against the euro, which climbed back to around 110.60 yen from a low of 109.93, but it was still short of a nine-week high at 111.01 yen hit offshore. The dollar kept most of its gains against the euro, though dealers said the forex market was not as convinced about the prospects for a rapid US economic recovery as Wall Street. The euro was at $0.8871/72, having retreated from a $0.8941 high in the wake of the non-manufacturing NAPM index.
Sterling gained against the dollar and the euro in London after a batch of disappointing US data outweighed worries about a two-speed economy in Britain.
The US third quarter revised productivity and weekly jobless claims data came in below expectations, pushing the US stocks lower and clouding prospects for the US economy. Sentiment for sterling brightened earlier following the data showing buoyant UK housing markets, only to be offset by worse-than-expected domestic industrial output data.