The declining trend in net foreign investment continues mainly due to significant fall in portfolio investment.

According to the State Bank of Pakistan’s latest data, net foreign investment declined by 13 per cent during the first seven months of the current fiscal year to $2.23 billion from $2.56 billion in the corresponding period last year.

At the same time, Pakistan’s current account deficit during the seven months of the current fiscal year at $7.8 billion is two per cent above the same period last year. This situation is exerting downward pressure on the rupee/dollar parity. This week, the rupee in the local currency market touched five month lows breaching Rs80 barrier against the dollar. It, however, made a smart recovery against the euro.

Strong demand for dollar in the inter bank market forced the rupee to continue its weakening trend against the dollar on the opening day of the week. After closing last week at Rs79.70 and Rs79.75 the rupee shed seven paisa on the buying counter and four paisa on the selling counter changing hands at Rs79.77 and Rs79.79 on February 16. The rupee further shed 16 paisa against the dollar on February 17, which traded at Rs79.93 and Rs79.95, amid tight dollar supplies.

Growing dollar demand to meet import payments forced the rupee to breach Rs 80 barrier on February 18 when it touched the day’s low at Rs80.45 before settling at Rs80.05 and Rs80.15, a level last touched in October 2008. At this level, the rupee was down by 12 paisa on the buying counter and 20 paisa lower on the selling counter.

However, moderate recovery was observed on February 19, as the rupee managed to gain 20 paisa for buying and 28 paisa for selling to trade against the dollar at Rs79.85 and Rs79.87 amid easy dollar supplies. Finally the inter-bank market witnessed a steady trend in the rupee/dollar parity on February 20. The rupee remained unchanged against the dollar on the buying counter, while it gained one paisa on the selling counter to trade at Rs79.85 and Rs79.88. During this week, the rupee in the inter-bank market lost 15 paisa against the dollar.

In the open market, the rupee extended further losses against the US currency on the opening day of the week and traded at Rs79.40 and Rs79.80 on February 16, after shedding 10 paisa over the previous week close of Rs79.30 and Rs79.70. On February 17, however, the rupee stood unchanged at its overnight levels on the buying counter and gained 10 paisa on the selling counter with the dollar changing hands at Rs79.40 and Rs79.70. On February 18, the rupee shed 30 paisa after it failed to hold its overnight firmness versus the dollar and traded at Rs79.70 and Rs80 at close.

On February 19, the rupee traded unchanged at its previous day’s close of Rs79.70 and Rs80 against the dollar. The rupee extended its firmness versus the dollar on February 20, closing the day at Rs79.60 and Rs79.80 after gaining 10 paisa on the buying counter and another 20 paisa on the selling counter. On cumulative basis, however, the rupee this week lost 30 paisa for buying and only 10 paisa for selling in the open market versus the dollar.

Versus the European single common currency, the rupee commenced the week on a positive note. After closing previous week at Rs102 and Rs104, it rebounded strongly gaining 70 paisa on the buying counter and another 170 paisa on the selling counter to trade at Rs101.30 and Rs102.30 on February 16.Upward rising trend in the rupee/euro parity persisted on the second trading day of the week in review. The rupee further gained 10 paisa on February 17 when euro was seen changing hands at Rs 100.20 and Rs 102.20.

On February 18, however the rupee assumed downtrend against the euro on the selling counter, losing 100 paisa but it remained unchanged on the buying counter at its overnight level to trade at Rs100.20 and Rs103.20 in the third trading session. On February 19, the rupee regained its firmness as it gained 40 paisa for buying and 140 paisa for selling to trade versus the euro at Rs99.80 and Rs101.80. Firm trend versus euro persisted on the last trading day of the week. The rupee further gained 10 paisa and traded against the euro at Rs99.70 and Rs101.70 on February 20. During the week in review, the rupee in the open market recovered Rs2.30 against the European single common currency.

On the international front, US financial markets and centres were closed for President Day holiday on February 16. The yen rose against other major currencies in Tokyo after Group of Seven finance ministers made no specific reference at their weekend meeting to the Japanese currency’s strength, despite data showing Japan’s economy had shrunk sharply in the last three months of 2008. The dollar was at 91.75 yen, down 0.1 per cent from late US trading last week after falling as low as 91.43 yen on trading platform EBS.

The euro fell 0.8 per cent to $1.2760 and dropped 1.1 per cent to 117.10 yen. Sterling fell 0.8 per cent to $1.4237 after the G7 also made no mention of weakness in the pound. There had been speculation that the finance chiefs might mention the rise in the yen and the fall in sterling. The pound came under pressure after Lloyds Banking Group unveiled hefty losses related to its HBOS subsidiary. Data released earlier showed an unprecedented slump in exports caused Japan’s economy to shrink by 3.3 percent in October-December, the sharpest fall since the first oil crisis in 1974.

On February 17, the dollar gained broadly, hitting a 10-week high against the euro after warnings from two credit ratings agencies sparked fear that a deep recession in Eastern Europe would cause further damage to banks in the euro zone. The yen also fell after earlier data showed Japan’s economy shrank in the fourth quarter at its fastest clip in 35 years and the country’s finance minister resigned, putting pressure on the government. The euro fell below $1.26 for the first time since early December.

The euro was last down 1.3 percent at $1.2602 after earlier falling as low as $1.2564, its lowest level since December 4. It fell 0.7 per cent to 116.31 yen. The dollar rose 0.6 per cent to 92.30 yen, not far from a one-month peak at 92.75 hit earlier. Sterling fell to a two-week low against a broadly firmer dollar after credit rating agency Moody’s said a recession in eastern Europe would affect western Europe’s banking sector. The pound had fallen 0.8 percent to $1.4154, having earlier hit $1.4125 - its lowest since February 2.

On February 18, the US dollar stormed above 93 yen for the first time in six weeks and neared a three-month peak against the euro after President Obama pledged up to $275 billion to stem US home foreclosures. Worries about euro zone banks with exposure to struggling Eastern European countries kept investors wary of the euro, while demand for the yen evaporated amid fears about Japan’s economy, which contracted sharply in the last quarter of 2008. In New York trading, the dollar was up 1.5 percent at 93.75 yen after earlier hitting 93.94 yen, the highest level since January 7.

The euro remained under pressure after Moody’s Investors Service warned this week that the recession in emerging Europe would put ratings of local banks and their western parents under pressure. It fell to $1.2514, its lowest level since November. It was last at $1.2548, down 0.3 percent on the day. Sterling fell 0.2 percent to $1.4212 after minutes from the Bank of England’s February meeting showed officials voted unanimously to seek government consent to buy gilts and other securities. In London, the pound reached a two-week low of $1.4094 against the dollar following the release of the BoE minutes.

On February 19, the US dollar fell against the euro as hopes that Germany may step in to help weaker European economies whetted investors’ appetite for risk while Japan’s economic woes continued to pressure the yen. In late New York trade, the euro was up 1 percent at $1.2660, below a session peak of $1.2759 but well above a three-month low of $1.2511 touched a day earlier. The dollar changed hands at 94.28 yen after the Bank of Japan left its key policy rate unchanged at 0.10 percent as expected. The Japanese currency had earlier risen to 94.46 yen, its highest level since January 6. Sterling rose 0.4 percent to $1.4277.

At the close of the week on February 20, the euro gave back much of the previous day’s gains on the dollar as investors in Asia continued to be concerned about damage to banks in Europe from struggling economies in the euro area and surrounding countries. Dealers said there was also some demand for dollars ahead of a record $94 billion in auctions of US Treasuries next week. In Tokyo, the dollar inched down 0.1 percent from late US trade to 94.10 yen but stayed within striking distance of the six-week high of 94.47 hit on trading platform EBS. Investors in Asia quickly booked profits on the rise, sending it down 0.6 percent to $1.2592. Sterling was steady against the dollar at $1.4291.