The rupee has lost more than 20 per cent against the dollar so far this year. The main problem is balance of payment crisis. Foreign currency reserves have fallen sharply due to a deteriorating balance of payments position.
The weekly SBP foreign exchange currency reserve data that currently reserves stand equivalent to less than three months of imports as uncertain political situation has undermined investor confidence. However, some experts believe that the situation could improve after presidential election scheduled for September 6.
Slight recovery in the value of rupee versus dollar is expected this month due to increased inflows of overseas remittances in the holy month of Ramazan, which would help the rupee recover ground versus dollar and euro. However, many economists are of the view that this recovery in the rupee would be short lived in the absence of positive economic indicators. Meanwhile, the rupee opened the week on a negative note against the dollar in the inter bank market as it lost 45 paisa on September 1 due to increased dollar demand, amid short supplies and traded at Rs76.95 and Rs77.00, against previous week close of Rs76.50 and Rs76.55.
Trading in interbank market remained suspended on September 2 as banks were closed for zakat deduction being first day of holy month of Ramazan. The downtrend in rupee/dollar parity persisted on the third trading day of the week in review. Heavy payments for oil imports pushed the demand for dollar further in the local currency market as a result the rupee came under renewed pressure on September 3, surpassing Rs77 mark at one stage during the day. Later in the day, the rupee managed to trimmed losses and retained its overnight levels against the dollar, suggesting no change over the previous day’s rate.
The rupee firmness against the dollar persisted on the fourth trading day as the parity traded unchanged. However, improved inflows of foreign remittances from overseas workers ahead of Eid-ul-Fitr helped the rupee to strengthen further on September 5, when the rupee posted fresh gains of 35 paisa, changing hands versus the dollar at Rs76.55 and Rs76.60 at the close of the day. Thus at the end of the week in review, the rupee in the interbank market was lower by five paisa against the dollar over the previous weekend’s level of Rs76.50 and Rs76.55.
In the open market, the rupee remained under pressure versus dollar on the first trading day of the week in review. It suffered 40 paisa loss on the buying counter and another 30 paisa decline on the selling counter to trade at Rs76.30 and Rs76.80 on September 1, after closing last week at Rs75.90 and 76.50. However, the rupee managed to recover its overnight losses versus the dollar on September 2, after dollar inflows improved. The rupee recovered 30 paisa and traded at Rs76.00 and Rs76.50.
On September 3, the rupee failed to retain its overnight firmness against the dollar and came under demand pressure due to the closure of interbank market for zakat deduction being first of Ramazan It lost 70 paisa for buying and 60 paisa for selling to trade at Rs76.70 and Rs77.10. However, the rupee managed to recover some of its overnight losses on September 4 and gained 10 paisa against the dollar, which were seen changing hands at Rs76.60 and Rs76.90 at the close of the day.
On September 5, the rupee gained 10 paisa on the buying counter but at the same time it shed 10 paisa on the selling counter to change hands versus the dollar at Rs76.50 and Rs77. In the open market, the rupee this week continued to remain under demand pressure against the dollar. It did not show any change on the buying counter but it posted 50 paisa loss on selling counter over the previous week close.
Versus European single common currency, the rupee commenced the week on a happy note as it managed to hold firm ground gaining 30 paisa and traded at Rs111 and Rs111.20 on September 1, after closing last week at Rs110.70 and Rs110.90. The rupee further gained 25 paisa on the second trading day to trade at Rs110.45 and Rs110.65 on September 2. On September 3, the rupee extended it firmness against euro and further gained 30 paisa on the buying counter and 35 paisa on the selling counter, changing hands at Rs110.15 and Rs110.30.
On September 4, however, it failed to retain its overnight firmness versus the European single common currency and lost 5 paisa for buying and 10 paisa for selling to trade at Rs110.20 and Rs110.40. However, the rupee managed to rebound versus euro on September 5, making a strong recovery against the European single common currency by gaining more than Rs2 in a single day trading, as euro fell to its lowest level in a year against dollar in Asian trading. After posting fresh gains of over Rs2, the euro was trading at Rs 108.25 and Rs 108.95, some Rs 1.40 above the previous weekend’s Rs110.70 and Rs110.90.
On the international front, US markets were closed for the Labour Day holiday on the opening day of the week in review. However, the dollar approached an eight-month high against a trade-weighted basket of currencies in the Tokyo market.
The dollar index rose 0.4 per cent to 77.504. A rise above 77.619 would take the index, which measures the dollar’s value against a basket of currencies, to an eight-month high. The dollar has rallied broadly over the past month, benefiting from signs that the US economy’s weakness was spreading to other major economies. The euro fell 0.2 percent to $1.4640. A fall in the euro to below $1.4570 would take the single European currency to its lowest level since mid-February.
The dollar dipped 0.3 per cent to 108.46 yen. The pound fell below $1.80 for the first time since April 2006, suggesting the factors that contributed to its dismal showing in August, when it suffered its steepest monthly decline in 16 years, are very much alive. It fell to as low as $1.8005. It later trimmed some losses to stand at $1.8047 for a decline of 0.9 per cent on the day. It extended its losses after falling more than 8 percent against the dollar in August in its biggest drop since it crashed out of the Exchange Rate Mechanism in 1992.
On September 2, the US dollar rose to a 10-1/2 month high as measured by a basket of major currencies boosted by a sharp drop in oil prices and persistent concerns about the health of other major global economies. In late New York trading, the euro was down 0.6 per cent on the day at $1.4517, after falling below $1.45 for the first time since February and more than 15 cents off the record high scaled in mid-July. The currency slumped more than a full per cent to $1.7784, its lowest since April 2006.
On September 3, the dollar briefly extended its gains versus the euro after a government report showed US factory orders rose more than expected in July, adding to signs of resilience in the US economy. In New York, the euro was 0.1 percent down at $1.4505, after hitting a low of $1.4386 in intraday trading, its lowest since January 22. The dollar inched up 0.3 per cent against the yen to 109.01 yen.
Sterling was down only 0.1 per cent on the day against the dollar at $1.7797, having earlier traded at its lowest since April 2006 at $1.7669. The pound was flirting with $2 barely a month ago.
On September 4, the US dollar rallied to its highest against the euro this year after the European Central Bank cut its growth outlook for the 15-nation region, boosting the likelihood of interest rate cuts. In late New York trading, the euro tumbled more than 1 percent on the day to trade at $1.4332, after falling as low as $1.4321, its lowest since December 2007, according to Reuters data. The dollar, however, fell 1.1 percent against the yen to trade at 107.12, hurt by sharp losses on Wall Street. The pound was down 0.1 percent at $1.7725, but holding off previous day’s 2-1/2 year low of $1.7664.
At the close of the week on September 5, the yen surged to a 13-month high against the sliding euro in Tokyo as investors fled risky positions such as leveraged carry trades, spooked by a sharp fall in stock markets. The euro dropped 0.3 percent to $1.4279 after sliding to a 10-month low of $1.4212 in frantic late US trade.
Even the resurgent dollar succumbed against the yen, hitting a six-week low of 105.67 yen and down 0.4 percent on the day at 106.72 yen. The euro sank to a 13-month low of 150.60 yen before pulling back to 152.44 yen down 0.6 percent from late US trade. Sterling fell as low as $1.7538 before recovering to $1.7660, up 0.4 percent on the day.
Source: Daily Dawn, 8/9/2008