The country is facing severe political and economic crisis since the past few months. Uncertain situation has eroded investment confidence and adversely affected business and trade activities.

The central bank has again taken some measures to improve the situation. But many economists are of the opinion that simply raising discount rate by one percentage point will not improve the situation. It would rather add to the cost of doing business and could further aggravate the situation. The inflation rate is already very high. Government borrowings for budgetary support have set a new record. The fiscal deficit as percent of GDP has also risen sharply and the trade deficit is also very high.

In the present situation, the rupee is seen depreciating further. Meanwhile, negative sentiments persisted in the inter bank market on the opening day of the week as importers heavy demand for American currency continued to exert downward pressure on the local currency. The rupee fell against the dollar by two paisa on the buying counter and another three paisa on the selling counter, changing hands versus the dollar at Rs71.20 and Rs71.25 on July 28. The dollar had closed last week at Rs71.18 and Rs71.22.

On July 29, the rupee/dollar parity continued its downtrend, amid persistent weak economic indicators. The demand for dollar continued to rise in the local market. As a result, the rupee suffered fresh losses against the dollar, falling sharply by 25 paisa on the buying counter and by another 30 paisa on the selling counter to trade at Rs71.45 and Rs71.55. The rupee/dollar parity continued its downtrend on July 30, with the rupee further shedding 10 paisa on the buying counter and five paisa on the selling counter to trade at Rs71.55 and Rs71.60 against the dollar.

However, the rupee managed to recover its lost ground versus the dollar on July 31 after the State Bank of Pakistan raised discount rate by 100 basis points to combat inflation and deteriorating trade deficit. The dollar traded at Rs71.45 and Rs71.50 after gaining 10 paisa despite rising importers demand for dollars. Strong demand by the importers to cover payments pushed the rupee down further on August 1, when the rupee failed to hold its firm ground versus the dollar and shed 10 paisa to trade at Rs71.55 and Rs71.60, bringing cumulative fall in the rupee/dollar parity to around 38 paisa in the inter bank market this week.

In the open market, the rupee suffered sharp losses against the dollar on the opening day of the week in review due to strong dollar demand in the local currency market. It shed 70 paisa for buying and 50 paisa for selling to trade at Rs71.50 and Rs71.90 on July 28, against last week close of Rs70.80 and Rs71.40. The rupee extended its overnight weakness on July 29 further shedding 40 paisa, changing hands against the dollar at R 71.90 and Rs72.30.

The rupee traded unchanged against dollar on July 30. However, it posted fresh losses of 30 paisa on the buying counter while trading unchanged on the selling counter at Rs72.10 and Rs72.30 on July 31. The rupee retained its overnight levels against the dollar and traded unchanged at Rs72.10 and Rs72.30 for the second consecutive day on August 1. During the week in review, the rupee in the open market lost 130 paisa against the dollar on the buying counter. It lost 90 paisa on the selling counter.

Versus the European single common currency, the rupee continued to weakened on the first trading day of the week in review, losing 60 paisa for buying and 55 paisa for selling to trade at Rs112.35 and Rs112.55 after having settled last week at Rs111.75 and Rs112.00. The rupee further lost 35 paisa on the second trading day, changing hands against euro at Rs112.70 and Rs112.90. On the third trading day, the rupee managed to stage a turnaround versus the European common currency, gaining 125 paisa at Rs111.45 and Rs111.65.

But the rupee overnight strength over the euro proved short lived on the fourth trading day when the rupee posted fresh losses to the tune of 20 paisa against the euro which traded at Rs 111.65 and Rs 111.85. The rupee extended its decline versus euro on the fifth trading day of the week in review, losing 15 paisa to trade at Rs111.80 and Rs112.00. This week, the rupee moved both ways against the European single common currency. On cumulative basis, it lost only five paisa on the buying counter, while it remained unchanged on the selling counter over the previous week close.

On the international front, the dollar eased on July 28 amid concern that losses at US financial companies will continue to mount and further weigh on the slowing economy, limiting the Federal Reserve’s ability to raise interest rates by year-end. Declines in US stocks helped pull the dollar down from a one-month high scaled earlier against the Japanese yen at 108.08 yen in New York trading. The dollar was last trading 0.4 per cent lower at 107.46. The euro shrugged off a report showing German consumer sentiment hit a five-year low and rose as high as $1.5768. The euro traded 0.2 per cent higher at $1.5747. In London, sterling slipped 0.1 per cent against the dollar to $1.9885.

On July 29, the euro fell a session low of $1.5684. It was last trading at 1.5689, down 0.4 per cent on the day. The dollar rose 0.3 per cent to 107.82 yen as US stocks opened firmer, thanks to the slide in crude oil prices. US crude oil slid about 0.9 per cent to $123.84 per barrel due to selling on speculation that oil prices may push lower after coming off a record high earlier this month. The yen was also hurt by news that Japan’s jobless rate rose in June to a near two-year high and household spending fell again from a year earlier. Sterling fell against the dollar after weak retail sales data exacerbated fears on the health of Britain’s economy. The pound fell 0.33 per ent on the day to $1.9894.

On July 30, the US dollar continued its recovery of the past ten days, buoyed by an upbeat private sector jobs report for July and ongoing efforts by central bank officials to ease stress in financial markets. But the dollar’s gains were limited by a $4 a barrel rebound in crude oil prices on data showing an unexpected decline in US gasoline inventories last week. After an 18 per cent slide in oil prices to three months lows in the past ten days, the bounce in oil reignited worries that high-energy costs would undermine consumer spending and weaken the US economy further.

Overall though sentiment on the US dollar remained positive, compared with the euro, which has been of buffeted by data showing a deteriorating European economic outlook. The euro slipped to $1.5567, recovering from one-month lows at $1.5521 in the wake of poor euro zone sentiment data. Against the Japanese yen, the dollar was little changed at 108.12 yen, after climbing to one-month highs at 108.33, according to Reuters data. In London, sterling hit a three-week low against the dollar as the greenback rose broadly on stronger-than-expected US jobs data. The pound was down nearly 0.2 percent on the day at $1.9760, its lowest since July 10.

On July 31, the US dollar slipped as news of a surprise jump in weekly jobless claims and weaker-than-expected economic growth in the second quarter dimmed prospects for interest rate increases this year. It, however, recovered some of its losses as crude oil prices fell and US data showed manufacturing activity in the country’s Midwest region rose in July. The euro surged to a session high of $1.5700, according to Reuters data. It last traded at $1.5598, up 0.1 per cent on the day. The dollar slid 0.2 percent against the yen to 107.85 yen after falling as low as 107.58 yen. Sterling traded 0.4 percent higher at $1.9890. It touched the day’s high of $1.9928 after data showed that the US economy grew at an annual rate of 1.9 percent in the second quarter, less than forecasts of two pe cent.

At the close of the week on August 1, the dollar edged up towards a one-month high against the euro before monthly US jobs data later in the day, with investors viewing the report as a key hurdle for whether the US currency can sustain its rebound. In Tokyo trade, the euro fell 0.3 percent to $1.5559, not far from a one-month low of $1.5522 hit earlier this week and well off a record peak of $1.6040 struck last month. The dollar fell 0.2 per cent from late US trade to 107.63 yen after hitting a one-month peak of 108.39 yen on electronic trading platform EBS the previous day. Sterling hit a three-week low against a broadly stronger dollar, down 0.5 per cent at $1.9740, having earlier hit a three-week low of $1.9729.