The rupee showed strong upward trend versus the dollar and euro in the local currency market this week as a result of several measures announced by the State Bank of Pakistan in the past three weeks to improved dollar supply, restrict rupee slide, end speculation and restore public confidence of the business and banking community.

However, the government has so far failed to restore the confidence of foreign investors. The country’s foreign exchange reserves have further reduced by $426 million during last week due to rising trade deficit, huge foreign payments and slow inflows. The country’s foreign exchange reserves currently stand at $7.32 billion.

The trade deficit is continuously on the rise. Traders and business community seems little bit shaky about the government ability to deal with the current economic crisis prevailing in the country. They fear that reserves will continue to decline in the next few weeks due to the huge foreign payments, rising current account deficit and slow foreign inflows. But some economists express their confidence that Pakistan has enough resources to meet the existing challenges, provided steps are taken to improve law and order situation and to establish good governance.

Measures taken by the central bank last week seem to have brought some positive change in the local currency market on the opening day of the week. In the interbank market, the rupee remained fluctuated against the dollar throughout the week in review. After closing previous week at Rs83.10 and Rs83.20 it managed to rebound against the dollar this week posting fresh gains of Rs1.90 on the buying counter and Rs1.80 on the selling counter on the week’s first trading day to trade at Rs81.20 and Rs 81.40.

The rupee recovery on the first trading day, however, proved short lived as it failed to hold its overnight strength and shed 25 paisa for buying and 10 paisa for selling due to rise in dollar demand for financing import payments on October 21. Thus the dollar was seen changing hands at Rs81.45 and Rs81.50 on the second trading day of the week. Marginal improvement was seen in the rupee value on the third trading day, when five paisa gain made the dollar to trade at Rs81.40 and 81.45 on October 22.

On October 23, the rupee/dollar parity remained stable, trading unchanged at its overnight level of Rs 81.40 and Rs 81.45. But on the fifth trading day, the rupee retained its October 22 level after shedding five paisa against the dollar, which traded at Rs 81.45 and Rs 81.50 on October 24. During the week in review, the rupee in the interbank market managed to recover 170 paisa against the American currency amid fluctuations.

In the open market, the rupee stood firm against the dollar, gaining 80 paisa on the buying counter and another Rs1.50 on the selling counter to trade at Rs83.70 and Rs 84.00 on October 20. The rupee had closed last week at Rs84.50 and Rs85.50. October 21, the rupee further gained 120 paisa for buying and 100 paisa for selling and traded at Rs82.50 and Rs83.00 against the dollar. It, however, failed to retain its firmness versus the dollar on October 22 and shed 50 paisa against dollar on the buying counter and 20 paisa on the selling counter, changing hands at Rs 83.00 and Rs83.20.

On October 23, the rupee retained its overnight level on the buying counter but lost 50 paisa on the selling counter, trading at Rs83.00 and Rs83.70 against the dollar. On October 24, the rupee in the open market staged a smart recovery against the US currency, gaining 80 paisa on buying and 100 paisa on selling. At the close of the day, the dollar was at Rs82.20 and Rs82.70. This week, the rupee in the open market managed to sharply recover 280 paisa against the dollar

Versus European single common currency, the rupee strengthened this week. It gained sharply on the opening day of the week in review, trading at Rs110.85 and Rs 111.00 on October 20, up 160 paisa on the buying counter and another 165 paisa on the selling counter over the previous week close of Rs112.40 and Rs112.60. The rupee further extended its firmness against the euro on the second trading day, changing hands versus euro at Rs110.85 and Rs111.00. The upward trend in the rupee value persisted for the third consecutive day, with euro trading at Rs108.15 and Rs108.30.

The rupee further strengthened versus euro and traded at Rs106.90 and Rs107.10 on the fourth trading day of the week in review. The rupee further extended its gains against euro after recovering another 270 paisa on the fifth trading day, with euro changing hands at Rs104.20 and Rs104.40 on October 24. On cumulative basis, the rupee during the week in review gained Rs8 over the European single common currency.

On the international financial market, the US dollar rallied on the week’s opening day despite an improvement in risk appetite and a drop in interbank lending rates as companies bought the US currency to meet their operational needs. Analysts said the dollar also received a boost from Federal Reserve Chairman’s testimony before Congress endorsing another stimulus plan for the sluggish economy. Tight credit conditions and fears of a global recession have lent the dollar a safe-haven currency status.

The euro slumped to session lows around $1.3287, wiping out gains that lifted it as high as $1.3530 in overnight trade on the back of the improvement in risk appetite. It was last down 0.6 percent at $1.3322. Despite broader dollar losses, the US unit rose 0.3 percent to 101.98 yen. Sterling lost its lustre after initially rising more than one percent against the dollar as the greenback gained broadly late in the session. The pound was down 0.7 per cent at $1.7164, according to Reuters data.

On October 21, the dollar climbed to its highest since February 2007 against a basket of currencies as investors bet that interest rates outside the United States will fall sharply to shore up global growth. The euro dropped to $1.3052, according to Reuters data. It was last down 2.2 per cent at $1.3053. The dollar fell 1 percent against the yen to 100.95 yen. The dollar rose as high as C$1.2208 before settling back at C$1.2136, still up 2 percent for the day. Sterling traded at $1.7017, a percent lower on the day.

On October 22, the US dollar jumped to a two-year high as a deteriorating global economy and concern that financial market stability is still too far away spurred investors to liquidate risky assets.

The dollar climbed to a two-year high against the euro and a five-year peak against sterling. Fears of a global recession have seen US-based investors selling their assets in both developed and emerging markets and bringing the money back home, boosting the dollar. Against the yen, however, the US currency fell 1.4 per cent to 98.88 yen.

The euro fell as far as $1.2740, according to electronic trading system EBS, its lowest since November 2006. It was last down 1.7 per cent at $1.2830. Sterling hit a five-year low against a surging dollar. The pound stood at $1.6405, having pared losses after falling three per cent to a five-year low of $1.6203 earlier, according to Reuters data. Sterling has already shed more than five per cent versus the dollar this week, with the US currency benefiting from fund demand and unwinding of highly leveraged positions.

On October 23, the dollar was lower after climbing to a fresh two-year high against the euro and a basket of currencies. The euro was last up 0.5 per cent at $1.2914, after briefly racing to a session peak of $1.2938. Earlier, the European single currency slumped to a two-year low of $1.2726. The dollar was 0.5 per cent down at 97.400 yen after falling to a seven-month low of 95.94 yen. Sterling fell 0.4 percent to $1.6229, after tumbling to a five-year low against the dollar around $1.6046 due to concerns about the country’s vulnerability to the financial crisis.

At the close of the week on October 24, the yen hit a 13-year peak against the dollar and a six-year high versus the euro as fears of a deep global economic recession and emerging market troubles prompted many investors to cut overseas investments and repatriate funds. The yen has also soared as market players have unwound carry trades built up over the past several years, using the low-yielding yen to buy high-yielding currencies, commodities and emerging market assets. The dollar fell 1.6 per cent against the yen to 95.69 yen, after tumbling as low as 95.35 yen, the lowest since 1995 when the US currency struck a record low. Sterling fell 1.8 percent to $1.6032 after dropping as low as $1.6027.