Throughout the week in review, the local currency market witnessed active dollar buying by importers to cover their payment bills. Rising oil prices in the world market and the strengthening of dollar have pushed the domestic import bills. This together with week economic indicators and worsening law and order in the country, amid political uncertainty have pushed the demand for dollar, which in turn is exerting pressure on the rupee. Rupee weakness versus the dollar and euro persisted throughout this week in the local currency market.

The week commenced on a dismal note, as increased buying by the importers pushed the rupee down further in the interbank market on February 4. The rupee lost eight paisa on the buying counter and nine paisa on the selling counter, changing hands versus the dollar at Rs62.76 and Rs62.79 against previous week close of Rs62.68 and Rs62.70. There was no trading on February 5, as all banks and other financial, business and trading centres were closed for public holiday on Kashmir Day. Downtrend continued on the third trading day as persisting demand for dollars kept the rupee under pressure.

When trading resumed after a day break the rupee continued to suffer losses against the American currency. The rupee extended its weakness over the dollar and suffered four paisa decline on the buying counter and three paisa loss on selling counter, trading at Rs62.80 and Rs62.82 against the dollar on February 6. On February 7, the rupee traded at Rs62.84 and Rs62.86, after shedding another four paisa against the dollar. Cumulative losses in rupee value in first four days of trading reached 17 paisa this week. The rupee continued its slide versus the greenback on February 8 and further lost two paisa to trade at Rs62.86 and Rs62.88, bringing total loss versus the dollar in the inter bank market this week to 18 paisa.

In the open market, the rupee lost five paisa against dollar on the opening day of the week and traded at Rs62.75 and Rs62.85 on February 4 compared to previous week close of Rs62.70 and Rs62.80. When trading activity resumed after remaining suspended for a day on February 5 on account of Kashmir Day, the rupee further lost 10 paisa and traded at Rs62.85 and Rs62.95 against the dollar on the second trading day as excessive dollar buying did not allow the rupee to come out of pressure on February 6. On February 7, the rupee dipped to new lows against the dollar breaching Rs 63 barrier for the third time in the past six weeks.

Persistent dollar demand is exerting downward pressure on the rupee since the start of the year. The rupee lost 13 paisa for buying and 10 paisa for selling to trade at Rs62.92 and Rs63.05 against the dollar on the fourth day. The rupee continued its depreciation against the dollar on the fifth trading day, further shedding eight paisa on the buying counter and another five paisa on the selling counter as high demand for dollar persisted on February 8. At the close of the day the rupee was seen trading at Rs63.00 and Rs63.10. During the week in review, the rupee in the open market lost 30 paisa against the American currency.

Versus the European single common currency, the rupee posted a sharp fall of 25 paisa, changing hands at Rs92.65 and Rs92.75 on February 4, after closing previous week at Rs92.40 and Rs92.50. However, in the next trading session, the rupee managed to recover some of its previous losses versus the euro, gaining 90 paisa in single day trading to settle at Rs91.75 and Rs91.85 on February 6. On February 7, the rupee stood firm against the euro and traded unchanged at its overnight level for the second successive day.

On February 8, the rupee extended its overnight firmness versus the European single common currency for the third successive trading session as it managed to recover 85 paisa over its overnight levels to trade at Rs90.90 and 91.00 touching almost three month highs. As a result of three consecutive gains this week, the rupee staged a sharp recovery of Rs1.50 against the euro on cumulative basis over the previous week close.

In the international financial markets, the dollar slipped against the euro and edged up against the yen on the opening day of the week as investors waited to see how major central banks at policy meetings this week will respond to a potential global economic slowdown. Uncertainty continued to rule the US dollar after it was whipsawed last week by another hefty interest rate cut from the Federal Reserve, weak data on US growth and jobs and a surprisingly robust manufacturing report.

On February 4, the euro climbed 0.2 per cent to $1.4830, largely driven by gains in the euro against the yen and profit-taking on the dollar’s burst of strength at the previous weekend. The dollar ticked up 0.1 per cent to 106.73 yen. The Australian dollar rose 0.6 percent to US $0.9090 after earlier touching a near three-month high of US $0.9100 in New York. Sterling strengthened broadly in London, recouping about half the losses registered the previous session as investors trimmed bets against the currency ahead of a busy week featuring central banks’ policy meetings. The pound gained against the dollar. It was up 0.5 percent against the dollar at $1.9743.

On February 5, the US dollar dropped to the lower 106 yen level on in Tokyo as sluggish US service industry data accelerated fears about a recession in the world’s largest economy. The dollar traded at 106.27-30 yen, down from 106.76-86 yen in New York and 106.98-107.00 yen in Tokyo. The dollar moved between 106.20 yen and 106.86 yen, changing hands most frequently at 106.55 yen. The euro changed hands at $1.4626-4629 and 155.46-50 yen, against previous day’s close of $1.4643-4653 and 156.39-49 yen in New York and $1.4804-4806 and 158.38-42 yen in Tokyo.

On February 6, the euro drifted lower with investors expecting the European Central Bank’s vigilant stance on inflation to give way to concerns about economic growth. The ECB is expected to keep the benchmark euro zone interest rate at 4 percent - a full percentage point above the US federal funds rate - leaving the focus on whether the central bank’s president will stick to his hawkish stance amid signs of slowing growth in Europe. In New York, the euro was trading down 0.1 percent from the preceding at $1.4620, near the middle of a $1.4966-to-$1.4308 range that the currency has remained in since mid-November.

The euro was down 0.4 percent at 155.67 yen. The dollar was down 0.3 percent at 106.45 yen, weighed by a late-session decline in US stock indexes. Investors had earlier bought the yen as Asian stocks posted their biggest loss in two weeks on worries about the health of the global economy, dampening investors’ appetite for riskier assets. Sterling hit a two-week low versus the dollar ahead of widely-expected Bank of England interest rate cut. It was down 0.2 percent against the dollar at $1.9593 and is expected to be at $1.97 in one month, and down to $1.89 in a year’s time.

On February 7, the euro dropped against the dollar after European Central Bank President said euro zone growth risks are to the downside, paving the way for lower interest rates this year. In New York trading, the euro was down 1 percent at $1.4474 after dropping as low as $1.4442. The euro has lost 2.25 percent this week, heading for its biggest weekly fall since August 2005. The dollar rose 1 percent against the yen to 107.44 yen, mostly on technical trading. Sterling fell to a two-week low against the greenback at $1.9422 as the Bank of England cut rates by a quarter percentage point to 5.25 per cent, as expected, in a bid to head off a sharp consumer-led slowdown, and signalled further gradual policy easing ahead.

At the close of the week on February 8, the dollar steadied after rising against the euro and the yen overnight as most investors stayed on the sidelines before a weekend meeting of Group of Seven finance officials in Tokyo. The euro remained under pressure against the dollar, paving the way for lower interest rates this year. The euro is now on track for its biggest weekly decline against the dollar in 1-1/2 years, after approaching a record high last week.

In Tokyo, however, the euro was unchanged from previous day’s late US trade at $1.4480 after tumbling more than one per cent overnight to $1.4440 on electronic trading platform EBS. The euro has lost 2.11 per cent this week, heading for its biggest weekly fall since June 2006. The dollar edged down against the yen to 107.35 yen as some traders took profits on the previous session’s jump to 107.83 yen from below 106 yen. Sterling was up 0.3 per cent against the dollar at $1.9475, pulling away from the two-week low of $1.9386.