The rupee is still limping and not able to retain its level versus the dollar. In the local currency market, the rupee commenced the week on a firm note with the public in holiday mood ahead of Eid-ul-Fitr celebrations.

Slightly improved supply of dollar on September 29 enabled the rupee to hold ground versus the dollar. The rupee traded unchanged at its weekend levels of Rs78.15 and Rs78.20 amid dull trading in the inter bank market. However, demand for dollar increased on the second trading day of the week in review. The currency dealers reported 15 paisa loss on the buying counter and 20 paisa decline on the selling counter on September 30 in inter bank trading, where the dollar was seen changing hands at Rs78.30 and 78.40 despite improved dollar supplies.

In the open market, the rupee showed mixed sentiments on the opening day of the week. It managed to recover 10 paisa on the buying counter and 20 paisa on the selling counter and traded at Rs78.10 and Rs78.30 amid modest trading on September 30. The dollar had closed last week at Rs78.20 and Rs78.50. On the second trading day of the week in review, the rupee maintained its overnight upward rising trend versus the dollar on the buying counter but it managed to hold its overnight rate on the selling counter trading amid slow trade at Rs78.00 and Rs78.30.

Versus the European single common currency, the rupee strengthened on September 29, gaining 54 paisa against its previous weekend levels to trade at Rs112.10 and Rs112.20 on the opening day of the week. The rupee continued its rising trend versus the euro on the second trading day of the week, recovering 142 paisa in single day trading on September 30, when euro was seen changing hands at Rs110.68 and Rs110.78. Consequently, the rupee managed to recover 196 paisa against the euro in two successive trading days.

Trading in inter bank and open market remain suspended during rest of the week as banks were closed on October 1, October 2 and October 3 on account of Eid-ul- Fitr. Normal trading in currencies will resume next week commencing October 6.

In the international financial market, the US dollar benefited from risk aversion globally on the week’s opening day, even though the US Congress failed to pass a $700 billion bank bailout package, as stock markets plunged and authorities were forced to rescue banks in several countries. The US House of Representatives failed to approve a plan to buy bad loans from US banks, designed to revitalise lending markets, but at least five banks in Britain, Belgium, Russia, Iceland and the US were rescued by authorities over the weekend, forcing mammoth injections of cash into the global banking system by central banks.

The Japanese yen rose against the greenback. The US dollar dropped as low as 104.03 yen, dragged down by tumbling US stocks, with the Dow Jones Industrial Average sinking more than 700 points at one stage, its biggest intraday-point decline ever. In late New York trade, the dollar was down 1.6 percent at 104.21 yen. The low-yielding Japanese currency also surged against the euro, with the European single currency dropping 2.7 per cent to 150.54 yen. The unwinding of carry trades saw the Australian dollar diving more than 5.0 percent to 83.54 yen and the New Zealand dollar dropping 3.7 per cent to 70.11 yen.

Despite the rejection of the US bailout plan by the House of Representatives, the US dollar held its gains versus the euro, with market attention still fixed on the crisis in European banking. Belgian, Dutch and Luxembourg governments nationalised parts of banking and insurance group Fortis and agreed to inject 11.2 billion euros into the financial group. At one point, the euro fell more than two per cent to a 10-day low at $1.4301, according to Reuters data and was last trading at $1.4444, down 1.1 per cent on the day.

Sterling hit a 10-day low against the dollar after UK lender Bradford & Bingley was nationalised, snapping attention away from US financial sector worries. The deepening banking sector and money market crisis against a backdrop of slowing growth also dimmed the pound’s yield appeal as speculation grew that the Bank of England would need to cut rates soon. The pound later shed some of its losses after global central banks threw more resources into boosting US dollar liquidity. The US Federal Reserve sharply increased the amount and extended the duration of its currency swap arrangements with nine central banks including those of Canada, England, Japan, Denmark and the European Central Bank. Sterling was down 1.8 percent at $1.8105 after hitting a 10-day low of $1.7962, according to Reuters data.

On September 30, the dollar fell to a four-month low against the yen as investors fled risky positions after US lawmakers refused to pass a $700 billion bank bailout plan, sparking the biggest Wall Street stock sell-off since 1987. But the dollar quickly recovered ground against the yen, as Asian stock markets trimmed some of their earlier losses. The euro and sterling have also suffered as banks in Europe succumb to the widening crisis fallout, prompting investors to rush for currencies seen as a safe-haven during the turmoil, such as the yen and Swiss franc.

The dollar struck a four-month low of 103.50 yen on trading platform EBS before recovering to 104.45, up 0.4 per cent. Despite the dollar’s recovery, traders expect it to weaken against the yen as risk aversion is expected to spread after trade moves to Europe and the United States. The dollar is also vulnerable because more investors are betting the Federal Reserve will cut interest rates from the current two per cent in an effort to limit the economic fallout from the worst financial crisis since the Great Depression.

The dollar fell 4.3 per cent against the yen during September, when problems in the US financial sector went from bad to worse. Earlier this month, the US government took control of troubled mortgage finance giants Fannie Mae and Freddie Mac and bailed out insurer AIG while Lehman Brothers filed for bankruptcy. The euro fell 0.2 per cent to $1.4391 after falling to a low of $1.4338 earlier on September 30. The single currency was 2.2 percent below where it was at the end of August. The euro was up 0.1 per cent at 150.24 yen off an earlier low of 148.84 yen. It hit a two-year low earlier in the month.

Sterling hit an almost two-week high against the euro, as the single currency fell prey to strong US data and investors pricing in the spread of the housing and banking sector crisis in mainland Europe. Dealers also noted hefty selling of euros at the European Central Bank’s latest fixing, exacerbated by automatic sell orders at key technical support levels. The pound dropped 1.4 percent against the dollar to $1.7801 after reaching a two-week low of $1.7761 and following its biggest one-day percentage fall in over a decade on September 29. Analysts say Britain is just as exposed as the United States as markets eye every twist and turn of the proposed $700 billion US rescue plan for the financial industry.

On October 1, the US dollar traded mainly higher on revived hopes for passage in the US Congress of a massive bank bailout package that would calm jittery markets. The euro was quoted at 1.4009 dollars from 1.4092 dollars in New York late on September 30. The yen firmed however, as the dollar dipped to 105.73 yen from 106.11 yen. Much of the market’s attention was focused on efforts in Washington to respond to the financial crisis, with the Senate readying a vote on a massive 700-billion-dollar aid package for the sector. With the market hanging on this news, price swings in the currency markets will continue to be sudden as traders position themselves to take advantage of any moves related to this event.

The troubles at European banks have led to demand for dollars that has pushed up the greenback against the euro and pound. The dollar strengthened against the euro and sterling after demand for dollar funding soared in Europe. European financial institutions that have been overexposed to the financial crisis have scaled back on their lending and are repaying their dollar-denominated loans. Dealers said many players wanted safety at all costs and the dollar provided that despite the turmoil caused by the collapse of the US sub-prime or higher risk home loan market.

Against this backdrop, a sharp fall in a key US manufacturing survey did not hit the dollar as would have been expected otherwise. In late New York trade, the dollar stood at 1.1257. The pound fell against the dollar for a third day after an industry report showed U.K. manufacturing contracted last month at the fastest pace in 16 years.