ASSIGNMENT

OF
IF

Submitted to-
Ms.Pallavi Dawra
Faculty ,PCTE

Submitted by-
Neelam Monga
MBA-2c

Dollar Vs Rupee
Reasons of rupee appreciation against dollar

The main reason for Rupee Appreciation is on account of

1. Huge forex inflow mainly the USD. This inflow is in the form of FDI, ECB, Investment and
Remittances.

2. Growing Exports. Resulting in huge inflow in USD thus making the domestic currency
appreciate against the dollar.

3. Political Dilemma. Central bank with stringent task to achieve inflation at 4.0 to 4.5% is not in
a position to help exporter by means of infusing rupee in the market.

Rupee declines against dollar

The rupee depreciated by 13 paise against the dollar today, as the American currency
strengthened against other major currencies.

In the early trade at the Interbank Foreign Exchange (Forex) market, the domestic unit was
trading at Rs 45.70 a dollar against the previous close of Rs 45.57/58 following heavy selling of
dollar by exporters and some banks.
Euro Vs Rupee

Currency Chart for EUR vs. USD over 3-months

The end of the “strong dollar” doctrine

The US dollar is losing further ground on the foreign exchange markets. EUR-USD succeeded in
briefly going beyond 1.40 on Thursday, sterling reached a 7-month high of 1.60 and, at almost
1.00, AUS-USD is at its highest level in 28 years. Despite the surprising cut in interest rates by
the BoJ and the decision to implement further quantitative easing measures in the total amount of
35 trillion yen, USD-JPY has fallen below the “intervention threshold” of 83. USDCHF is
posting new all-time lows every day.

Monetary authorities in the emerging markets are fighting the upward pressure on their
currencies by intervening on the forex markets and using capital movement controls. IMF
managing director Dominique Strauss-Kahn warned against using currencies as weapons and
Brazil’s president Luiz Inácio Lula da Silva spoke of a currency war.

The Rubin doctrine that a strong dollar was in the interest of the US seems to have become
obsolete. In the run-up to the autumn meeting of the IMF and the World Bank as well as the G20
meetings in October and November, the US has been putting greater pressure on China to allow
a substantial appreciation of the Chinese currency.

A weaker dollar would help the US economy to regain competitiveness and promote growth and
employment in the US.

The exchange rate dispute with China is nothing new but from a US perspective it has become a
much more urgent political issue than in previous years: for one thing, the US administration is
running out of political tools to get the economic engine going. The strained public budget
provides for very little leeway in financial policy. For another, the government is trying to gain
favour among the electorate ahead of the congressional elections on 2 November.

Unlike in earlier years, the US administration’s efforts to build up pressure on China are now
receiving massive support from monetary policy. Since the last open market committee meeting
there are growing signs that the US central bank is preparing further quantitative easing
measures. Although there are widely diverging views as regards “QE2” even within the ranks of
the Fed itself, the markets are almost certain that a substantial securities purchase programme
will be launched on 3 November.

The expectation of such a flood of liquidity is pushing US interest rates to new lows and clearly
weakening the US dollar. This effect is even aggravated by the fact that – unlike in the US –
monetary policy in most other economies is meanwhile more inclined towards tightening rather
than easing the monetary reins. This applies to most emerging markets but also to a number of
industrialised countries and, in essence, to the euro-zone as well.

From a European point of view, this is something of a dilemma. With respect to China, Europe is
pulling in the same direction as the US. The EU, too, has long been urging that the yuan’s
undervaluation be corrected. As long as this does not happen, however, and China and the other
Asian “dollar block” countries prevent an appreciation of their currencies via controls on capital
movements and interventions on the forex markets, it is the European currencies that will have to
bear the brunt of the upward pressure.

The weakness of the US dollar is probably here to stay for a while. The crucial dates are all in
November, i.e. the US congressional elections, the FOMC meeting and the G20 summit in Seoul.
Despite the belligerent statements of the last few days, we do not expect to see a major currency
devaluation race. We believe that China will make some concessions in the negotiations with the
USA and the EU. China is still rather stubborn at the moment. Prime minister Wen Jiabao points
to significant risks for what he considers to be a low-margin Chinese export industry and the
consequential risks for growth, employment and social stability in China. On the other hand,
China wants to have greater influence in the IMF, and the price it will have to pay for this is
cooperation.

We have furthermore gained the impression that market expectations as regards US monetary
policy are vastly exaggerated. For some time now we have noticed that the warnings of a double
dip and deflation have become less audible: the economic recovery in the US is continuing, with
third-quarter growth likely to amount to around 2 %, bolstered by private consumption, capital
investments and foreign trade. Although the employment trend is anything but satisfactory the
current situation would not call for dramatic emergency measures. Taking the sceptics in the
FOMC into account, we would therefore rather expect to see prudent and circumspect action.

This is why we believe that the pressure on the US dollar will continue in the next few weeks. It
is likely that the EUR-USD rate will rise to well above 1.40. From around the beginning of
November, however, the sabre rattling could subside again and the dollar regain lost ground.

Currency Chart for EUR vs. INR over 3-months

This currency chart displays the value of the Euro in relation to INR1 Indian rupee (EUR/INR)
over a 3-month period.

Japanese Yens to 1 USD (invert,data)

Japanese Yen Weakness Could Be Short-Lived, Consolidation Ahead

The Japanese Yen weakened against the U.S. dollar for the first time in four weeks, with the
exchange rate advancing to a high of 82.45 on Friday, but the near-term rally in the USD/JPY
could be short-lived as the pair continues to trade within the downward trend channel carried
over from January. The DailyFX Speculative Sentiment index continues to reinforce a bearish
outlook for the dollar-yen as retail traders remain heavily net long against the pair, and the
exchange rate may pare the advance from earlier this month as investors diversify away from the
greenback.

Meanwhile, former Bank of Japan official Masayuki Matsushima warned that the “bond bubble”
may burst over the medium-term as the government struggles to manage its public finances, and
implored the administration to “increase the consumption tax rate” after Standard and Poor’s cut
the region’s credit rate to AA-. As Japan holds the top seat amongst the industrialized countries
for the largest budget deficit, the tepid recovery could make it increasingly difficult for Prime
Minister Naoto Kan to manage the risks for the region, and the central bank may weigh different
alternatives to stimulate the ailing economy as it aims to promote a sustainable recovery. As the
marked appreciation in the exchange rate continues to dampen foreign demands, the BoJ may
look to intervene in the currency market once again as the benchmark interest rate remains close
to zero, but the technical outlook continues to reinforce a bearish outlook for the USD/JPY as the
pair fails to retrace the decline from the previous month.

The USD/JPY appears to be in a small consolidation phase as the technical outlook continues to
point to further decline, and the exchange rate may trend sideways over the near-term before we
see another break to the downside. As the rebound in the dollar-yen tapers off ahead of the upper
bounds of the downward trending channel, currency traders may take advantage of the range-
bound price action over the following week, and the pair may continue to retrace the rebound
from back in November as the U.S. dollar struggles to regain its footing.