Panic buying of dollars as a result of different speculations pushed the rupee lower sharply against dollar on the money market during the week ended on May 21, 2011. On the interbank market, the rupee lost 115 paisa in relation to dollar for buying and selling at Rs 86.35 and Rs 86.40.
Same pattern was seen on the open market where the rupee fell steeply by Rs 2.15 for buying at 87.30 and Rs 2.20 for selling at 87.50 versus US currency. Versus euro, the rupee lost Rs 2.82 for buying and selling at Rs 122.51 and Rs 123.01.
The rupee met this fate following speculative buying of dollars. In fact, there were several payments, particularly for oil and rupee's modest fluctuations were likely before 2011-12 budget. But rumours, which hinted that the rupee may come down to 92.00 per dollar in days to come, pushed the rupee to face more depreciation in terms of the greenback.
At the week-end, forward bookings of dollar were at high level, which gave the impression that the rupee was losing sharply and it appeared that the finance ministry would come ahead to rescue to the rupee.
Another view was that exports might increase further in the near future. However, it was very difficult about the direction of the money market. Maybe, this week may be clear how the market would react.
It was noted that the gap between interbank and open market rates had widened to approximately Re one.
The general trend in the money market was weak as the speculative buying of dollar continued as no change was seen in the key policy rate, experts said.
In the announcement on Saturday regarding monetary policy, the State Bank of Pakistan (SBP) decided to leave its key policy rate unchanged at 14 percent for subsequent two months.
Pakistan's fiscal deficit is likely to be 6.2 percent of gross domestic product (GDP) in the 2010-11 fiscal year (July 2010-June 2011), compared with the government's target of 5.5 percent, the State Bank of Pakistan said in its statement.
The central bank also revised its forecast for inflation to range between 14 and 14.5 percent for the fiscal year ending on June 30, compared to its earlier projection of between 14.5 to 15.5 percent.
INTER-BANK MARKET RATES: On Monday, the rupee lost 14 paisa for buying versus dollar at 85.34 and 13 paisa for selling at 85.38.
On Tuesday, the rupee gained two paisa for buying in relation to dollar at 85.32 and one paisa for selling at 85.37.
On Wednesday, the rupee dropped 22 paisa against dollar for buying and selling at 85.54 and 85.59.
On Thursday, the rupee shed four paisa in terms of dollar for buying at 85.58 and one paisa for selling at 85.60. On Friday, the rupee lost 60 paisa in terms of dollar for buying at 86.18 and 63 paisa for selling at 86.23.
On Saturday, the rupee lost 17 paisa in relation to dollar for buying and selling at 86.35 and at 86.40.
OVERSEAS OUTLOOK FOR DOLLAR VS MAJOR CURRENCY UNITS: In the first Asian trade, the euro slid to a six-week low against the dollar and a two-month trough against yen and was seen testing pivotal support areas after ex-IMF chief Dominique Strauss-Kahn was charged with sexual assault on the weekend, increasing uncertainty on aid for Greece and other indebted euro zone countries.
The shocking news on Strauss-Kahn soured investor risk appetite, which had already been strained by a rout in various commodities and falls in share prices in the past two weeks.
Indian rupee was trading at Rs 44.86 versus dollar and Malaysian ringgit at 3.0370. In the second Asian trade, euro held steady against dollar, but downside risks persisted after its recent breach of a technical support level and due to the lingering threat of further long liquidation.
The euro remained vulnerable due to concerns about the debt of countries on the euro zone's periphery although it gained some reprieve on Monday after euro zone finance ministers approved an emergency loan programme for Portugal.
The yuan ended up slightly against dollar on Tuesday even though the Chinese central bank set a weaker mid-point, underpinned by market expectations for a stronger yuan in the long term as inflationary pressures lingered.
In the third Asian trade, euro was buoyant against dollar, but wariness over Europe's sovereign debt problems kept investors nervous about piling up euro positions.
The euro drew support from a recovery in oil prices and precious metals, while a downward trend in US Treasury yields weighed on the dollar.
"The euro is still in a correction phase after recent declines. It has the potential to advance towards $1.43-$1.44 on hopes for more buybacks by foreign investors," said Hideki Amikura, a forex manager at Nomura Trust and Banking. "But the euro could lose ground again once rounds of corrective buying are over," Amikura said.
The euro rose 0.3 percent to $1.4275, Indian rupee was trading at Rs 45.15, Malaysian ringgit at 3.0350 and Chinese yuan was at trading at 6.5045 in relation to US currency.
In the fourth Asian trade, the euro extended its recovery and dollar came under broad selling pressure as market players judged that commodity prices had steadied after weeks of decline.
The dollar briefly scaled a three-week high against yen on rebounds in US bond yields after the minutes of the Federal Reserve's April meeting were released, but it failed to maintain gains as rising risk appetite hit the US currency.
The yuan closed up against dollar for a second day after the People's Bank of China set a firmer mid-point, reinforcing expectations the central bank would stick to a policy of yuan appreciation, albeit gradually.
Indian rupee was trading at Rs 44.97 versus dollar and Malaysian ringgit was at 3.0265. While euro's fragility was made evident on Friday when ratings agency Fitch downgraded Greece and Norway suspended a grant payment to the country, it was likely remain range-bound over the near term with the ECB widely expected to communicate plans for another rate hike at its meeting on June 2.
Friday's negative Greece news caused euro to sink to a session low of $1.4139 on trading platform EBS before paring losses on a commodities rebound.
Investors were focused on the key $1.40 level for the euro.
According to a report, Americans, worried about a weaker dollar, may want to get used to it. Whatever Treasury Secretary Timothy Geithner may say about a strong dollar being in US interests, the likelihood is that the currency will fall sharply in the next few years. And one doesn't have to go much further than the pressure Washington is putting on China to revalue the yuan to explain why.
If the yuan appreciated between an annual 5-7 percent against dollar over the next five years, as some analysts and traders expect, then the dollar is likely to slide anywhere between 20 to 30 percent on trade weighted and other indexes based on baskets of currencies.
In the final Asian session, the euro eased against dollar, but held on to much of the gains it made the previous day after some weak US economic data underscored expectations that the Federal Reserve would keep interest rates near zero for a while.
The dollar struggled to regain ground after taking a hit on Thursday from data showing a slowdown in manufacturing growth in the US Mid-Atlantic region and an unexpected fall in existing home sales in April.
Lingering concerns about the possibility of debt restructuring in Greece, however, could help limit the euro's gains against the dollar, market players said.
"This is probably a temporary rebound (in the euro). I personally think it wouldn't be a surprise if the euro were to head down towards below $1.40," said Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo.
The yuan strengthened for a third day against the dollar on Friday after China set a firmer mid-point, fuelling expectations that the Chinese currency could reach another record high soon.
OPEN MARKET RATES: On May 16, the rupee lost 35 paisa in terms of dollar for buying and selling at 85.50 and 85.65.
The rupee slipped Rs 1.11 versus euro, for buying and selling at Rs 120.80 and Rs 121.30. On May 17, the rupee retained overnight level in relation to dollar for buying at 85.50 and recovered five paisa for selling at 85.60.
The rupee lost 60 paisa in terms of euro for buying and selling at Rs 121.40 and Rs 121.90.
On May 18, the rupee lost 30 paisa in terms of dollar for buying at 85.80 and 40 paisa for selling at 86.00. The rupee lost 60 paisa versus euro for buying and selling at Rs 122.00 and Rs 122.50.
On May 19, the rupee gained 60 paisa versus dollar for buying and selling at 85.20 and 85.40. The rupee lost 50 paisa versus euro for buying and selling at Rs 122.50 and Rs 123.00.
On May 20, the rupee lost 170 paisa against dollar for buying and selling at 86.90 and 87.10. The rupee dropped by Rs 1.20 in relation to euro for buying and selling at Rs 123.70 and Rs 124.20.
On May 21, the rupee declined 40 paisa versus dollar for buying and selling at 87.30 and 87.50. The rupee, however, recovered Rs 1.19 versus euro for buying and selling at Rs 122.51 and Rs 123.01.
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