Political instability in the country, soaring prices of essential items and growing unrest among people has adversely affected domestic and foreign investment.
The trade deficit has reached historic highs. Mounting import bill, particularly for oil, is causing dearth of dollar and dragging the rupee value down against the American currency in the local currency market despite several measures taken by the State Bank of Pakistan in the past three weeks. The rupee continued its downtrend versus the dollar and euro in the interbank and open market throughout this week.
In the interbank market, the rupee suffered fresh losses of 10 paisa on the opening day of the week and traded at Rs71.90 and Rs71.95 against the dollar amid uncertainties on economic and political font on August 4. It had closed last week at Rs71.80 and Rs71.85 after dropping 60 paisa in the entire week. The rupee further slid on August 5, when dollar traded at Rs72.25 and Rs72.30 down sharply by 35 paisa. The rupee failed to resist further decline amid persistent strong demand for dollar for the third consecutive day on August 6, when the dollar was seen changing hands at Rs72.50 and Rs72.55 after 25 paisa decline in rupee value.
However, the rupee/dollar parity remained unchanged on the fourth trading day despite heavy dollar demand. The rupee retained its overnight value versus the greenback and traded at Rs72.50 and
Rs72.55 on August 7. Persistent strong demand for dollars by importers on August 8 pushed the rupee down further. However, the rupee suffered a modest decline of five paisa against the dollar, as the dollar was seen changing hands at Rs72.55 and Rs72.60. During the week in review, the rupee in the inter-bank market lost 75 paisa against the dollar.
In the open market, the rupee commenced the week on dismal note shedding 30 paisa against dollar on the buying counter and dropping by 40 paisa on the selling counter to trade at Rs72.40 and Rs72.70 against previous week close of Rs72.10 and Rs72.30. On August 5, the rupee, however, traded unchanged on the buying counter but shed 10 paisa on the selling counter, changing hands against the dollar at Rs72.40 and Rs72.80.
The rupee/dollar parity failed to hold ground with the rupee sharply slipping by 35 paisa for buying and 20 paisa for selling to trade at Rs72.75 and Rs73.00 on the third trading day. The rupee further lost 30 paisa on buying and 25 paisa on selling to trade at Rs73.05 and Rs73.25 on the fourth trading day of the week in review.
Finally, the dollar closed the week at Rs73.05 and Rs73.25 as the rupee traded unchanged at its overnight levels. However, the rupee in the open market suffered 95 paisa decline against the dollar in the entire week.
Versus European single common currency, the rupee shed 60 paisa for buying and another 50 paisa for selling over the previous weekend’s level of Rs111.80 and Rs112.00, changing hands at Rs112.40 and Rs112.50 on the opening day of the week. The rupee, however, gave up its overnight weakness in relation to the euro on the second trading day, recovering 15 paisa on the buying counter and another 10 paisa on the selling counter to trade at Rs112.25 and Rs112.40. The rupee further extended gains on the third trading day, rising by 25 paisa on the buying counter and 20 paisa on the selling counter and traded at Rs112.00 and Rs112.20 against the euro.
After remaining firm for two successive days, the rupee gave up its overnight firmness against the euro on the fourth trading day. It lost 10 paisa and traded at Rs112.10 and Rs112.30 against the European common currency. But then it recovered from its overnight weakness against the euro on August 8, sharply gaining 160 paisa to trade at Rs110.55 and Rs110.70. This week, the rupee recovered up to 135 paisa against the European single common currency.
In the international financial market, the dollar rose against the yen on as the oil price’s drop to a three-month low and some upbeat US economic data generated optimism about the prospects of the broader economy on the opening day of the week. It touched a session peak of 108.29 yen on August 4, as US light crude oil fell as low as $119.50, the lowest level since early May, arresting a sharp decline in US stocks. The euro was up 0.1 per cent at $1.5584 after trading as high as $1.5631. Sterling fell as low as $1.9654, down around 0.25 per cent and its lowest since July 7.
On August 5, the dollar climbed to seven-week peaks against the euro and a major currency basket, as oil prices plunged and the Federal Reserve maintained its focus on quelling persistent US inflation pressure in the economy. The dollar briefly pared gains against the euro and yen immediately after the decision, which kept rates steady at two per cent.
Overall, the dollar kept its bid tone. The lowest since June 16. In late trading in New York, the euro was down 0.7 percent on the day at $1.5461, having traded as low as $1.5448, the lowest since June 16, according to Reuters data.
The dollar’s performance against the euro has been closely correlated to the direction of oil prices, with cheaper oil generally supporting the US currency. US crude oil futures fell around $1 to trade near a three-month low of $119.50 hit the previous day. Against the yen, the dollar was steady at 108.20 yen in sight of a six-week high of 108.39 yen hit last week. Sterling hit a 1-1/2-month low against the dollar after data showed that the UK manufacturing and services sectors remain weak, adding fuel to the view that the economy may be heading for a recession. It was down 0.3 per cent at $1.9585, having fallen as low as $1.9524 after the output figures to hit it since mid-June.
On August 6, the dollar rose for a fourth straight day overall to a seven-month peak versus the yen and a six week high against the euro, as the slide in oil prices to a new three month low raised hopes economic growth would pick up and inflation would subside. The dollar’s break above a key technical level around 108.60 yen also contributed to the greenback’s rally. The dollar raced to 109.71 yen, its highest level since early January, according to Reuters data. It was last trading at 109.60 yen, up 1.2 per cent on the session.
The dollar was on track for its highest daily gain versus the Japanese currency in three weeks. Demand for the euro fell ahead of the European Central Bank policy. The euro fell against the US dollar and last traded down 0.3 per cent at $1.5412, a six week low. Sterling fell below $1.95 for the first time since mid-June thanks to a broad technically-driven rally in the US dollar, a day before the Bank of England delivers its latest interest rate decision. It was down 0.2 per cent against the dollar at $1.9502, having earlier traded as low as $1.9492, a trough not seen since June 18.
On August 7, the dollar rose broadly and hit a 5-1/2-month high against a basket of currencies bolstered by a surprise rise in June home sales and diminished expectations for euro zone interest rate increases. The euro fell to a seven-week low at $1.5333, down 0.5 percent from previous day.
The dollar rose 0.2 per cent against the Swiss franc to 1.0621 francs. The dollar also fell 0.3 per cent to 109.37 yen, as investors also took profits on the greenback’s recent gains. Sterling fell to an eight-week low against a broadly stronger dollar. The pound was down 0.25 percent at $1.9425, well off a four-month high of $2.0153 hit in July.
At the close of the week on August 8, the dollar edged up 0.2 percent versus the yen to 109.61 yen in Tokyo holding near a seven-month high struck this week.
But traders said a climb above 110 yen may be difficult in the near term. The euro shed 0.7 per cent from late New York trade to $1.5208. The pound was down 1.3 per cent at $1.9185, having posted its biggest one-day fall in percentage terms since December.
The UK currency has tumbled roughly three per cent so far this week, its biggest drop since mid-2005. It has crashed from a 3 1/2-month high of $2.0153 hit only three weeks ago. Sterling hit a 21-month low against a broadly buoyant dollar, as investors took a warning on slowing euro zone growth as a signal to pick up the greenback against a host of currencies.
Source: Daily Dawn, 11/8/2008