It was a roller coaster ride in the currency markets over the past fortnight. An unexpected plan by the Greeks early this week for referendum on their bailout package, and the subsequent u-turn (after tough talk by the French and the Germans) found reverberations on movements in global currencies. The Indian rupee swayed along.

Rupee fightback

After touching a 30-month low of 50.17 against the US dollar on October 21, the rupee scrambled back above the psychologically crucial level of 50 early in the following week and has managed to stay there since. On Friday (November 4), the rupee closed at 49.11 to a US dollar, up 91 paise from a fortnight ago.

Much of these gains were registered in the Diwali week in late October, when the rupee taking support from an upbeat domestic equity market, put up a strong show. The 25 basis point hike in the repo rate by the RBI during the week also aided the rupee. On October 31, the rupee traded at 48.69, its 5- week high against the USD.

Grecian jitters

November though did not start well for global markets and also for the rupee. The bombshell by the Greek Prime Minister, Mr George Papandreou, seeking a referendum on the country's bailout plan threatened to throw into disarray the long-drawn efforts to solve the European debt crisis.

Consequently, the Euro which was gaining against the USD on hopes of crisis resolution was hammered down and the EUR-USD cross fell from a high of 1.419 on October 27 to a low of 1.370 on November 1. The bankruptcy of MF Global and a deceleration in Chinese manufacturing growth added to the global jitters and accelerated flight of funds to ‘dollar safety'.

The effect of weakening of the Euro and strengthening of the dollar was also reflected in the rupee, which shed 57 paise against the USD on November 1 to close at 49.26.

Over the course of the week though, Greece was under heavy pressure from other Euro zone members to reverse its decision.

Threatened with being shunted out of the Euro zone and non-release of bailout funds till the plan was shelved, the Greek Prime Minister changed tack and abandoned the referendum late in the week.

This helped the Euro gain some lost ground against the USD, and as on Friday close, it yielded 1.38 dollars, still below its high of late October.

The Euro's weakness over the last fortnight has seen the INR gain against the currency which now yields Rs 67.99 per unit, as against Rs 69.05 on October 21.

It is also some relief to the global markets that the Greek Prime Minister has won a parliamentary confidence vote early Saturday, which improves the chances of the earlier debt agreement not being cast aside. However, while it seems averted for now, the debt crisis in Greece and Europe is far from resolved. In the weeks ahead, the European debt factor may continue to exert major influence on movements in global currencies including the rupee.

On the domestic front, high inflation could act as a drag on the rupee. However, exports continuing to grow faster than imports, as seen in the recently announced September numbers, could provide support to the currency.

comment COMMENT NOW