Rates move both ways

RECORDER REVIEW

KARACHI: The trend in the money market was generally mixed during the shortened week ended on November 12, 2011 as the rupee moved both ways against both dollar and euro.

In inter-bank dealings, the rupee dropped 49 paisa in relation to dollar for buying and selling at 86.58 and 86.62.

In the open market, the rupee did not move against dollar for buying at 86.40 and gained 10 paisa for selling at 86.70, while it lost 20 paisa in terms of euro for buying and selling at Rs 118.06 and Rs 118.56.

The rupee came under pressure amid post-holiday sessions as importers did massive buying of dollars to meet their demand. The banks remained closed for five days on account of Eid-ul-Azha holidays.

It seemed that the dollar gained momentum due to short supply because trade gap ballooned by 31.38 percent in first four months of current fiscal year 2011-12.

INTER-BANK MARKET: On Thursday, the rupee lost 35 paisa in relation to dollar for buying at 86.46 and 37 paisa for selling at 86.48.

On Friday, the rupee dropped 12 paisa in terms of dollar for buying at 86.58 and 14 paisa for selling at 86.62.

OVERSEAS OUTLOOK FOR DOLLAR: In the first Asian trade, the euro dipped as optimism about a Greek coalition government deal quickly faded and options positioning suggested more downside risk for the euro as traders shifted their focus to Italy, where the government is hanging by a thread. The common currency was weighed down by uncertainty over who will lead the new Greek government amid bitter political divisions, the unspecified timing of early elections and the precarious situation in the more strategically important Italy.

In the second Asian trade, the threat of more intervention by Swiss authorities kept the franc under pressure on Tuesday, while the euro dipped ahead of a crucial vote in Italy, with the country's bond yields at 14-year highs and Greece scrambling to pick a new premier.

The Swiss franc extended hefty losses sustained on Monday after the country's central bank officials stepped up their warning of more action to curb the currency if needed. The Swiss National Bank capped the franc at 1.20 francs per euro in September and vowed to defend that level with all means necessary.

In the third Asian trade, the euro fought stiff chart resistance following a rally after Italy's premier said he would resign, but its outlook remained gloomy amid the political turmoil engulfing both Greece and Italy, with those countries' borrowing costs showing no signs of easing.

Greece is scrambling to win emergency funds to avert bankruptcy as soon as next month with officials arguing over a new coalition government, while yields on Italian 10-year bonds hover above 6.7 percent, creeping up to levels seen as unsustainable.

Amid fourth Asian trade, the euro steadied as most players stuck to the sidelines after a sell-off the day before on a spike in Italian borrowing costs, but options positioning suggested more drops ahead as fears of global financial turmoil grip markets.

The euro licked the wounds it sustained on Wednesday in its worst one-day beating against the dollar in 15 months after yields on 10-year Italian bonds spiked above 7 percent, a level where the cost of financing a debt burden of more than 2 trillion euros is seen as unsustainable.

The euro held steady near a one-month low at $1.3540, with the previous session's high of $1.3860 a distant memory. It was likely to move towards a low of $1.3145 plumbed in early October, analysts said.

Inter bank buy/sell rates for taka against dollar were 76.40-76.42 (previous 76.35-76.39) and Call Money Rates 21.00/21.00 percent (previous 20.00-21.00 percent).

The yuan closed lower versus dollar, as the People's Bank of China fixed a mid-point significantly lower in the wake of an overnight rally in the US Dollar Index.

During the final Asian session, the euro held steady above its recent one-month low on Friday, but market players were sceptical that it would see a sustained bounce due to uncertainty over whether Italy will make progress on fiscal reforms under new leadership.

The euro gained some reprieve after a sell-off earlier in the week when Italian 10-year bond yields shot above the 7 percent level that is widely regarded as unsustainable.

Relief that yields at an Italian bond sale on Thursday remained below 7 percent lent support to the single currency, as did signs of easing political deadlock in Rome and Greece.

Former European Commissioner Mario Monti emerged as favourite to replace Italian Prime Minister Silvio Berlusconi within days and lead an emergency government. In Greece, former European Central Bank Vice President Lucas Papademos was appointed to head an interim crisis cabinet in Greece.

The euro was little changed from late US trade on Thursday, changing hands at $1.3621 and staying above a one-month low of $1.3484 touched on Thursday. For the week, the euro is still down about 1.5 percent.

The dollar versus Indian rupee was available at Rs 50.26, against Malaysian ringgit at 3.1480, and against Chinese yuan at 6.3434.

At the week-end, the euro rose the most against dollar in two weeks on Friday and may extend gains this week, should an auction of Italian bonds go smoothly, easing fears over the country's ability to repay its debt.

Italy is slated to auction three billion euros of five-year government bonds on Monday. It will be closely watched by investors after Rome managed to sell five billion euros of 1-year debt this week that helped Italian yields stabilize below the critical 7 percent.

Trading could continue to be volatile and headline-driven, and the outlook for the euro remains bleak as the euro zone has yet to find a solution to prevent the debt crisis from engulfing its larger economies such as Italy and Spain.

OPEN MARKET RATES: On November 10, the rupee rose by 10 paisa versus dollar for buying at 86.30 and 20 paisa for selling at 86.60. The rupee also appreciated in terms of euro by Rs 2.02 for buying at Rs 115.84 and by Rs 2.12 Rs 116.34.

On November 11, the rupee lost 20 paisa against dollar for buying at 86.50 and 10 paisa for selling at 86.70. The rupee also shed Rs 1.22 in terms of euro for buying and selling at Rs 117.06 and Rs 117.56.

On November 12, the rupee shed 10 paisa against dollar for buying at 86.40 while it did not show any change for selling at 86.70. In the meantime, the rupee shed Re one in terms of euro for buying at Rs 118.06 and Rs 118.56.