THE local currency mostly displayed strength versus the dollar and euro this week, despite strong dollar demand in the inter-bank as well as open market. The rupee managed to show firm trend versus the dollar due to sufficient supplies in the open market. Most analysts, however, expect the rupee to dip in coming days, with the deteriorating trade and payment deficits.
In the inter-bank market, the dollar was seen in demand on the opening day of the week. The dollar supplies in the local market were tight due to closure of international market. As a result, the rupee lost two paisa versus the dollar, which was seen changing hands at Rs60.29 and Rs60.31 on August 7, against last weekend’s Rs60.27 and Rs60.29. However, dollar supplies in the local market eased on the following day, as firm trend was witnessed in the inter-bank market on August 8 and the rupee/dollar parity mostly remained unchanged at its overnight levels.
On August 9, the demand for dollar was high in the local market, amid sufficient supplies. Despite high dollar demand due to oil prices surge in the international markets, the rupee displayed slight strength versus the dollar and lost only one paisa on selling counter to trade at Rs60.30 and Rs60.32. On August 10, the rupee continued to hold its firmness as it reverted to August 8 level after gaining one paisa versus the US currency, amid easy dollar supply. The dollar was trading at Rs60.29 and Rs60.31 in the inter bank market at the close.
Higher trend in oil prices in the world market turned the import bills higher, increasing dollar value in the local markets on August 11. Consequently, bearish trend was witnessed in the inter-bank market. Importers’ demand for US currency forced the rupee to shed two paisa versus dollar, which traded at Rs60.31 and Rs60.33. During the week in review, the rupee in the inter-bank market managed to restrict the decline in its value versus the dollar to two paisa over the previous week close.
In the open market, the rupee opened the week on a positive note as it managed to recover 12 paisa versus the dollar to trade at Rs60.58 and Rs60.63, after closing last week at Rs60.70 and Rs60.75. The rupee, however, lost two paisa against the dollar on the following day, changing hands at Rs60.60 and Rs60.65. Better supply of dollars on August 9, further boosted the rupee’s value, which improved against the dollar by 10 paisa to close at Rs60.50 and Rs60.55.
On August 10 it further shed two paisa to trade at Rs60.52 and Rs60.57. It, however, maintained a steady outlook in the open market, picking up two paisa, amid quiet trading to trade at Rs60.50 and Rs60.55 against the dollar on August 11. Over the previous week, the rupee this week showed strength against the dollar as it managed to gain 20 paisa this week.
Versus the European single common currency, the rupee commenced the week on happy note, gaining eight paisa in the local market to trade at Rs77.26 and Rs77.36 on August 7, as against previous week close of Rs77.34 and Rs77.44. The rupee extended further gains versus the euro on August 8, as dollar came under pressure in the international market. The rupee recovered another 28 paisa and traded at Rs76.98 and Rs77.08.
The rupee, however, failed to hold its firmness against the euro and slipped 28 paisa on August 9 to trade at Rs77.08 and Rs77.18. On August 10 the rupee shed 13 paisa against the euro to trade at Rs77.21 and Rs77.31. It, however, recovered 47 paisa versus euro in the local currency market as the single European currency fell slightly in terms of major currencies on August 11, when it traded at Rs76.74 and Rs76.84. The rupee recovered 60 paisa against the euro this week.
In the international financial market, the dollar inched up on August 7, supported by traders trimming bets against the US currency on the view the Federal Reserve may stop its credit tightening campaign, although not for long. After more than two years of raising interest rates, the Fed is widely expected to hold rates steady at 5.25 per cent this week. But after that, persistently hot readings of inflation may keep the Fed on alert and the dollar well supported.
In New York, the euro was down 0.2 per cent from last week close, at $1.2840, while the pound pared earlier gains to trade flat at $1.9064. Sterling rose to a 15-month high at $1.9130 last week. Some of the dollar’s largest gains came against the yen, up 0.6 per cent at 115.08 yen. As Japanese investors were buying dollars ahead of auction of $13 billion of 10-year Treasury notes, traders said. Against the Swiss franc, the dollar rose 0.2 per cent to 1.2255 Swiss francs.
With a pause largely priced in, though, the market is vulnerable to a sudden burst of strength in the dollar should the Fed issue a hawkish statement that dwells on existing inflation risks and leaves the door open for more hikes down the road.
Signs of slower US growth and report showing tepid US job creation in July cemented the case for a Fed pause, pushing the greenback to two-month lows. Since June 2004, the Fed has lifted the overnight borrowing rate to 5.25 per cent from one per cent, and that helped the dollar build a hefty yield advantage over other currencies.
But high energy prices - oil prices rose more than $2 a barrel - and rising US inflation gauges may force the Fed to tighten further. That could keep even the most aggressive of dollar bears penned up for a while longer. Also, International Money Market speculators sharply increased bets against the dollar in the week ended August 1, a position that was no doubt added to following the US jobs data and UK and eurozone rate hikes last week. That could accelerate any dollar upside from a hawkish Fed statement as investors take profits and unwind those stretched positions, Brown Brothers’ Chandler said.
On August 8, the dollar hovered within striking distance of two-month after the Federal Reserve kept US interest rates steady but appeared to leave leeway for more rises if price pressures persist. The dollar fell sharply after the Fed’s decision, which marked the first policy meeting in more than two years in which rates were not raised. But it recouped much of those losses, as many analysts said the US central bank would likely continue to tighten policy if inflation did not ease.
In late trading, the euro was at $1.2845, up around 0.1 per cent from a day earlier. It hit a two-month high of $1.2909 last week and came just short of revisiting that high in the wake of the Fed policy meeting. The dollar index, a gauge of the dollar against a group of major currencies, was at 84.79, slightly above a two-month low of 84.40 hit on Friday. The dollar was nearly unchanged at 115.08 yen, while sterling was up 0.2 per cent at $1.9090, off a 15-month peak of $1.9130 reached last week.
Short-term investors last week had significantly increased bets against the dollar anticipating the Fed would definitively signal the end of the current tightening cycle and leave benchmark short-term US interest rates at 5.25 per cent. The Fed’s uncertain outlook on rates in its post-meeting statement combined with the inability of the market to push the dollar to fresh two-month lows had forced some speculators to cover their bets, limiting the greenback’s losses.
On August 9, the dollar fell just shy of a two-month low against the euro, a day after the Federal Reserve kept interest rates steady for the first time in more than two years. But the dollar pared some of its losses by the end of the session as traders expected a technical rebound. The dollar had surprised some with its resilience immediately after the Fed kept rates unchanged at 5.25 per cent, but with central banks in Britain and the eurozone likely to keep raising their own interest rates this year, the appeal of holding dollars has diminished, some traders said.
After some small bets against the euro were unwound overnight as the eurozone single currency rallied, traders latched on to the momentum and sold dollars.
In New York, the euro climbed just short of last week’s two-month high of $1.2909 before easing back to around $1.2860, up 0.2 per cent on previous day.
Some pointed to the euro’s inability to leave behind the $1.2900 level in the last four sessions as a technical indicator the currency could struggle to hold its modest post-Fed meeting gains. The euro was up 0.3 per cent at 148.35 yen, just off a high of 148.45 reached in London, its highest since the euro was launched in 1999. Sterling hit an eight-year high at 220.13 yen, but the dollar was virtually unchanged at 115.35 yen.
On August 10, the dollar rose as dealers who had bet against the US currency in the wake of the Federal Reserve’s decision earlier in the week to hold interest rates steady liquidated their positions. The euro’s failure to break above recent highs after the Fed’s decision on August 8 was generally regarded as the main trigger for traders to unwind their short dollar positions and wait for better levels to sell the currency again.
In early trading session, the euro was down 0.6 per cent at $1.2790, not too far from an intraday low of $1.2750. The dollar was nearly unchanged at 115.25 yen and up 0.6 per cent at 1.2340 Swiss francs. Against the yen, the dollar has remained fairly resilient due in part to the greenback’s wide yield advantage over Japanese debt instruments. Sterling fell in European trade after British police said they had thwarted a plot to blow up trans-Atlantic flights, and that move-gained momentum as dollar buying picked up in the North American session.
Sterling, which hit a 15-month high above $1.91 early this week, was down 0.6 per cent at $1.8935, off a session low of around $1.8870, as selling that began on news of the plot picked up steam. Earlier this week, the dollar weakened after the Federal Reserve left interest rates on hold after 17 straight hikes, with the euro hitting two-month highs around $1.2910. But traders said lack of follow-through in dollar selling triggered a reversal.
At the close of the week on August 11, the yen slipped across the board after data showing Japan’s economy posted tepid growth in the second quarter reinforced expectations for the Bank of Japan to lift interest rates gradually. Gross domestic product expanded at a 0.8 per cent annualised pace in the April-June quarter, softer than market forecasts for a 1.8 per cent clip.
The Bank of Japan held rates steady at 0.25 per cent as widely expected, with market players focusing on comments from BoJ Governor Toshihiko Fukui in a news conference later in the session. Uno said he thinks the Federal Reserve won’t resume tightening credit after it kept the key rate at 5.25 per cent this week following 17 straight increases.
In Tokyo trade, the dollar rose 0.3 per cent to 115.55 yen. The euro edged up to 147.65 yen a day after soaring to 148.61 yen on electronic trading platform EBS, the highest since the single European currency was launched in 1999. Against the dollar, the euro was down slightly at $1.2780, off the two-month high of $1.2913 struck the previous session. Sterling inched higher to $1.8945 after taking a hit the previous session after British police said they had thwarted a plot to blow up trans-Atlantic flights, prompting some unwinding of long positions.
In London, the yen fell more than half a per cent against the dollar, euro and sterling, pressured by weaker than expected Japanese growth data which triggered further position adjustment. Sterling held its ground against the dollar and the euro, having fallen the previous day after the police bomb statement. The pound was little changed from the US close at $1.8937 and was up slightly against the euro at 67.42 pence.
The dollar hit a two-week high against the yen of 116.12 yen and was trading at 116.03 yen, up 0.70 per cent on the day. Analysts said the yen has risen against the dollar every August in the past eight years, so investors may have been caught short of dollars and were covering positions. The euro fell a quarter per cent to $1.2783, off a two-month high of $1.2913 struck the previous session.
The euro got little cheer from surprisingly strong French growth data. French GDP rose by 1.1-1.2 per cent in the second quarter compared with the first three months of the year, its fastest pace of growth in almost six years. French Finance Minister Thierry Breton told Le Monde newspaper that the euro was fully valued, and it was in no one’s interest for the United States to pursue any policies that would result in a sharp weakening in the dollar.
THE local currency mostly displayed strength versus the dollar and euro this week, despite strong dollar demand in the inter-bank as well as open market. The rupee managed to show firm trend versus the dollar due to sufficient supplies in the open market. Most analysts, however, expect the rupee to dip in coming days, with the deteriorating trade and payment deficits.
