Low trading activity was witnessed in the local currency market this week. Due to low dollar demand and sufficient dollar inflows, the rupee managed to resist its decline over the dollar and the euro during the week, which was shortened by four days due to the closure of banks and other business and trading centres on account of Eid-ul –Azha. Analysts now expect that the rupee is likely to improve versus the dollar and other major currencies in coming weeks.

In the inter-bank market trading resumed on December 11 after remaining suspended for four days on account of Eid holidays. The trading activity was low, as general public was still engaged in celebrating Eid. The demand for dollar was also low, which helped the rupee to gain nine paisa for buying and another eight paisa for selling to trade at Rs78.65 and Rs78.70 against last weekend’s Rs78.74 and Rs78.78.

However, demand for dollar was high on the second trading day. As a result, the rupee was marginally lower against the dollar on December 12. The dollar traded at Rs78.70 and Rs78.75 after rupee suffered seven paisa loss during the day. In two day trading this week, the rupee in the inter-bank market managed to recover four paisa against the dollar on cumulative basis.

Open market also remained closed for four days from December 7 to December 10 on account of Eid celebrations. As a result the market operated for only two days this week. When trading resumed on December 11, public was still in holiday mood. There was hardly any activity. Due to low dollar demand, the rupee managed to gain 20 paisa in relation to dollar, which was quoted at Rs77.80 and Rs78.30 after closing last week at Rs78 and Rs78.50.

However, on December 12, the last trading day of the week, the rupee failed to resist its decline against the dollar. It shed 20 paisa for buying and 10 paisa for selling due to rise in dollar demand and traded at Rs78.00 and Rs78.40. Over the past week, the rupee in the open market this week did not show any change on the buying counter, while it gained 10 paisa on the selling counter against the American currency.

Versus the European single common currency, the rupee fell sharply when trading in the local currency market resumed on December 11, after prolonged week end on account of Eid-ul- Azha. It lost Rs3.55 on the buying counter and Rs2.70 more on the selling counter to trade at Rs100.85 and Rs 101 compared to Rs97.30 and 98.30 in the previous week.

The rupee continued its downtrend versus the euro on December 12. It further shed Rs2.30 and traded at Rs103.15 and Rs103.30. In two days trading this week, the rupee in the open market suffered losses to the tune of Rs 5.85 on cumulative basis against the European single common currency.

In the international financial market, the dollar was steady against the yen on December 8, staying above six-week lows hit late last week, with traders focusing on whether US lawmakers would agree on a rescue plan for the “Big Three” US automakers. In Tokyo, the dollar was nearly flat at 92.88 yen from previous weekend US trading, when the dollar slipped to 91.58 yen on trading platform EBS after data showed that US payrolls fell by more than half a million in November, logging the biggest monthly drop in 34 years.

But the dollar and higher-yielding currencies later rose against the yen as US shares rallied, with investors betting that last week drop in oil prices to their lowest in nearly four years would support US consumer spending. The dollar fell to a 13-year low of 90.87 yen on EBS in late October, as the yen rallied due to the unwinding of carry trades. A drop in the dollar to below 90 yen would likely lead to heightened jitters about the potential for yen-selling intervention by Japanese authorities, whose last currency intervention came in March 2004.

The dollar and high-yielding currencies seem likely to edge gradually lower against the yen, with Japanese exporters likely waiting for opportunities to sell dollars and other currencies for yen. But the dollar could come under pressure again if the market’s focus shifts back to US economic fundamentals. Meanwhile, the euro rose 0.6 per cent to $1.2793 against the dollar. Sterling hit a record low against the euro and cut early gains against the dollar as shaky UK fundamentals tempted investors out of the UK unit. In London, It was up 0.5 per cent at $1.4835, cutting earlier gains above the $1.50 mark against a broadly weaker dollar.

On December 10, the dollar slipped to a two-week low against the euro while the yen fell broadly as a tentative agreement by US lawmakers to rescue American automakers helped calm investor sentiment. The White House and congressional Democrats reached a deal in principle on a $15 billion plan to bail out and restructure auto firms. The market is still feeding off hopes for mass fiscal stimulus in the US once President-elect Barack Obama takes office. Analysts said fears of Bank of Japan intervention to prevent too much yen strength also weighed on the currency after BoJ Governor said he was watching forex moves carefully.

In early New York trade, the euro edged up 0.3 per cent to $1.2948, having earlier hit a two-week high of $1.3004, according to Reuters data. The dollar rose 0.7 per cent to 92.78 yen. The yen was down 1.2 per cent against the Canadian dollar, 0.7 per cent against the Swiss franc and 1.1 per cent against the pound. Analysts said trading in recent days is less active than usual with little economic data to drive market moves and investors beginning to wind down for the year-end holidays. They believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high.

On December 11, the US dollar fell broadly, hitting seven-week lows against the euro and yen, as safe-haven demand faded and investors began booking year-end profits following months of steady dollar buying. Data showing another weekly rise in the number of Americans filing for jobless benefits, this time to a 26-year high, also weighed on the dollar, boosting the case for the Federal Reserve to cut interest rates next week from an already low 1 percent.

With trading conditions thinning ahead of year end, that pushed investors toward the euro, which carries interest rates of 2.5 percent, higher not only than US rates but also those in Britain, Japan and Switzerland, where the central bank cut rates by half a percentage point to 0.5 percent. Part of the reason for the dollar’s swoon was also tied to a fall in the rates banks charge each other to borrow dollars, reflecting decreased demand for the currency, and a general rise in risk appetite. The dollar’s rally in recent months was mainly the result of investors unloading stocks, commodities and emerging market assets and putting the money into safer US Treasury debt.

The euro hit a session peak of $1.3405, its highest level in seven weeks, before easing to $1.3336. On the day, it rose 2.5 per cent, its best daily gain since early November. The euro also rose one per cent to 88.87 pence, just off a record high of 89.08 pence, and 1.4 percent to 122.24 yen. Sterling rose 1.5 percent to $1.5004 while the dollar fell to 91.18 yen, a seven-week low and not far from its lowest level since 1995. It last traded down 0.9 per cent at 91.75 yen.

At the close of the week on December 12, the dollar tumbled to a 13-year low against the yen, slicing below the symbolic 90 yen threshold, as the US Senate failed to agree on a bailout for troubled US auto makers and triggered an exodus to the perceived safety of the Japanese currency. The tumble by the dollar raised the prospect of intervention by Japan to prevent a further appreciation of the yen, putting a floor under the US currency for the time being. Risk aversion has supported the yen over the past several weeks and surged as Asian stock markets dived in response to the US auto rescue plan failure. The news that a congressional rescue for US auto makers is effectively out of the picture for this year sent the greenback down sharply versus the yen.

The dollar dropped as low as 88.10 yen on trading platform EBS, a level untouched since August 1995. The dollar later pulled back to 89.61 yen, down 2.3 percent from late US trade on December 11. The euro declined 2.8 per cent to 118.97 yen. The Australian dollar, seen as a gauge for risk appetite, fell 4.7 per cent to 58.68 yen. The yen pulled back from 13-year highs struck against the dollar as market participants grew wary of Japanese currency authorities intervening to stem the yen’s advance. The euro dipped 0.6 per cent to $1.3280. Against the dollar, sterling was down 0.7 per cent at $1.4914.