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On Friday, Pakistani rupee came down to record low against the greenback. Many dealers blame the global financial crisis and weak economic fundamentals for the weakening of the rupee.

While the rupee was found trading at 78.15 rupees, it was cited down at 78.00/10 around noon. Pakistani currency had a previous day’s close at 77.65/75. Many believe that the central bank’s operation of buying/swapping has made market go short of dollars. Dealers say that with a commitment of selling dollars back, central back has been busy buying the currency in active market.

Any scope of intervention from central bank has been flattened down by the declining foreign currency reserves; also market is growing more anxious with fewer inflows from lenders. Dealers also believe that the concern in the market has been aggravated due to stress between Pakistan and US regarding the movement of US military in the Asian country.

Following the weakening balance-of-payments situation, Pakistani currency had lost nearly 21 percent against the American currency. According to information released on Thursday, the total foreign currency reserves of the country had gone down to $8.91 billion on September 13, which is around $190 million down from the previous week.

According to State Bank of Pakistan (Central Bank), it reserves went down from previous level of $5.72 billion to $5.52 billion. The bank also said that reserves in possession of commercial banks moved up a bit from $3.38 billion to $3.39 billion. After touching a record high with $16.5 billion last year, foreign reserves of Pakistan have been worn out by elevating oil import prices as well as withdrawal of money by foreign investors due to uncertainty in political scenario of the country.

In the first two months (July and august) of fiscal year of 2008/2009 the shortage in existing account grew to $2.572 billion, which is equal to 1.6 percent GDP or gross domestic product as compared to the yearly objective of 6.0 percent GDP.

According to analysts, the existing account for July and August is disturbing and actions to cut down imports are necessary. Compared to yearly objective of 12 percent for this economical year, August’s consumer price index moved up to 25.33 percent.

Maintaining the craving for high yielding currencies after the government of America declared a plan that will help in stabilizing worn out financial system, on Monday the Australian dollar witnessed a three-week high. In a week three-year Australian bond futures posted their major one day downfall with a loss of 0.22 points at 94.44 along with the ten year bond contract came down 0.254 points to 94.194.

With the investors came back to their trades, the Australian Dollar also increased as compared to the yen. The local currency was at 88.43 yen off at 89.78 which is a two-week high of 89.78, but up from 86.59 on Friday. It was around 4:10 p.m. that the Australian dollar was at $0.8299 as compared to American dollar, already raised to $0.8402 which was a three week high earlier.

On September 17th the Australian dollar came down to $0.7799 which was one-year low with the credit markets witnessed disorder of the carry trades. It also reduced the whole viewpoint of universal development and prices for the goods/services. On Friday the American Treasury moved to settle the financial markets, with a plan worth $700 billion for the purchasing of the bad mortgage related liabilities from various financial institutions. This also included American units of foreign banks in an attempt to stem the most awful financial crisis.

According to Mr. Joseph Capurso who is a currency strategist at Commonwealth Bank, risk hunger has been strengthened considerably on American news and with this the markets has been confident that a major upset may be saved. If the plans are accepted by the market then there are probabilities that this week we can witness a rise in the Australian dollar.

After the investment bank Lehman Brothers fell down the American package came up, the Federal Reserve gave $84 billion in help to American International Group and Treasury took over the mortgage leaders Fannie Mae and Freddie Mae. Morgan Stanley and Goldman Sachs also renounced their status of investment banking to be converted into bank holding companies those are controlled by American Federal Reserve for providing security in financial scarcity.

The Australian dollar also increased with the high prices of commodity along with the increase in oil prices which is stable over $104 a barrel and the gold with $867 per ounce. For the past few years Australia has been very good with the resources and is a big exporter of products/services. On Monday Australian Bureau of Agricultural and Resource Economics was of the view that both the iron ore and copper will be going ahead from its previous predictions.

On Monday, Morgan Stanley announced that a letter has been signed with objective of selling of 20 percent of the firm to Mitsubishi UFJ Financial Group Inc.

The firm did not disclose the financial terms of the deal. While the letter signed by the banks is said to be nonbinding, Morgan Stanley hopes to raise a price based on its book value following the completion of diligence review by the largest bank of Japan, if the deal is done.

The whole idea of the deal comes after the approval from fed to Morgan Stanley for becoming a bank holding firm. This major investment bank of Wall Street was allowed by Federal Reserve to become commercial bank in order to accept deposits. Now, this key firm of Wall Street will not be regulated by Securities and Exchange Commission anymore; instead will come under the Federal Reserve.

Morgan Stanley’s chairman and chief executive, John Mack, in a statement said that the deal would give opportunity to grow to both the banks as well as chance to make it big globally. He also added that the partnership would help the changeover of Morgan Stanley to a commercial bank as well as give a financial support to the firm in shoring its capital base in the time of credit crisis.

Past week has been busy with reports of sale of Merrill Lynch & Co to Bank of America, filing of bankruptcy by Lehman Brothers Holdings Inc and selling of Morgan Stanley.

Reacting to the government official’s proposal on Monday, the economists were of the view if any move is made to re-peg the Ringgit against the American dollar the Malaysian economy will have to suffer. The economists also added that if this got applied it would hurt the country’s export strength, it will also be affecting the investments, and it will also adjoin the factor of insecurity of the policies.

International Trade and Industry minister Muhyiddin Yasin was quoted by The Star Daily that a latest suggestion by the previous premier Mahathir Mohamad to re-peg the Ringgit should be reviewed. Mr. Yasin was of the view that all those mechanisms those were put into use in the earlier peg could be put into use again. Recently appointed Finance Minister Mr. Najib Razak will probably address a press meeting that was listed for midday local time Monday, but there was no statement made by the government of Malaysia.

The Ringgit was pegged at 3.79 by Mr. Mohamad’s management against American dollar to cut short the crashing currency of Malaysia. The peg was eliminated in the month of July 2005 and as far as the currency is concerned it has been trading in a ‘managed float’ ever since. At the last years end American dollar which purchased MYR3.399 now purchases MYR3.4159.

Though the economists were of the view that re-peg might be improbable, any proposal that the government was thinking of taking such a step will only be bringing a negative impact on Malaysia. According to an economist with a foreign bank-backed brokerage who wanted to keep his identity secret, in any case the government of Malaysia takes a decision to re-peg the Ringgit almost immediately after the de-pegging in the year 2005 will simply mean that they are themselves taking a step backward. He also added that at this point of time there is no need to have an excessively strong Ringgit as it will only affect the export spirits.

Giving his view on secrecy, an economist with a brokerage was of the view that re-pegging of Ringgit at any stage will only mean disturbing the whole practice of trading and generating a negative opinion for the officials of Malaysia. The present situation is totally different like it used to be in the year 1998. In a report JP Morgan was of the view that due to the break ups amongst the present management this move would be improbable and an obvious absence of consensus inside the current management.

The investors now had to face a new problem of re-pegging along with the political uncertainty and this will also disturb the local financial markets. A dealer was of the view that the stock market will also become a victim of re-pegging. The market response will probably be negative as with any limitations on the currency will only result in surrendering of the foreign funds.

On Tuesday, Federal Reserve left interest rate untouched at 2 percent and said that pressure and tension is mounting up significantly in the market. Also, Fed stressed on the need of keeping a check on the increasing pressure in the market, for need of an action when required.

Central bank had announced that it was not going to change its objective for federal funds rate, which is the interest charge on overnight loans by the banks. The rate remained untouched at 2 percent. Investors were sensing a rate cuts by Federal Reserve following the shock given by collapse of Lehman Brothers for not being able to find a buyer.

While Fed’s decision initial pushed down the stocks with Dow Jones industrial average shedding down by 100 points, but later on the situation changed. Investors realized that central bank was still positive and did not consider the economy was in a troubled state, which lead to rising of Dow Jones industrial average by 84 points.

Federal Reserve stated that there has been a significant increase in the stress in financial market as well as additional weakening of labor markets. On the other hand, central bank also showed concern regarding the stress of inflation. Fed announced that it is monitoring the economic development and changes closely and would take necessary measures or step to sustain the growth and prices as well as market stability.

While there had been anticipation of no arte cut by some economists, who were expecting an unchanged interest rate but also expected that Fed would indicate on a possible rate cut by indicating that the disturbance in the market has upset the stability of ‘downside risks to growth and the upside risks to inflation’. To which Fed said that the factor is of concern too.

Head of DMJ Advisors in Denver, David Jones, was not satisfied by the statement made by Fed and said that there is not hiding about downside risks to growth being overshadowing risks of inflation. David said that there are still chances of central bank implementing a rate cut of two quarter-point by the end of the year, if the disturbances in the market resulted in a growth weaker than expected by Fed.

The announcement by Fed to leave the key rates untouched came at the time when it injected $70 billion into financial system within the additional reserves. Fed performed it in its usual open market procedures that are managed by New York regional bank of Fed. It also marked this year’s first Fed meeting at the time when there hadn’t been any oppose from officials of Fed, regarding the lack of focus on inflation by central bank.

Before this meeting was held there had been dissents from president of the Dallas regional Fed bank, Richard Fisher. He had opposed for fives times consecutively. In last two meetings when the interest rates were left untouched by Fed, Richard had argued that there is a need to increase rates to handle increasing inflation pressures.

On Wednesday, rupee weakened with banks buying greenback in order to arbitrage in offshore trade. Strike by the workers of state bank affected the trade and kept the volume low.

Rupee was 0.2 percent low with 45.81/83 a dollar at 10.30 am, after a close of 45.72/73 of Tuesday. According to a dealer, with strike at state banks causing low volumes the currency is likely to stick to 45.70/45.95 level. He also said that offshore trade is also exerting pressure on the Indian currency.

To cash the price differential, dollars are purchased by banks from local markets to offshore side.

On Wednesday, failure of talks between chief labor commissioner and the union resulted in declaration of strike by the employees working at Indian public sector bank. The union and the commission were trying to discuss demands for delay stake sales in the banks and salary increase.

It is expected that the $700 billion rescue plan for financial market proposed by United States might edge down the gains at Sensex, which opened 0.5 percent up. According to dealers, rupee could low if oil companies demanded for dollar.

Rupee reclaimed its ground at 45.85/86 against US dollar, after it lowered down in early trade with a two year low of 46. The gain had been a result of drop in local stocks and dollar’s weak position in abroad.

The Indian rupee strengthen at 45.53/55 against dollar after it had a close of 45.75/76 and later the currency reached 45.46, pushed by fall of dollar against major currencies. Although in late morning trade, rupee dropped to 45.85/86 against dollar, a level last reached in 10th October 2006 with a close of 45.80/81 a dollar.

In early trade, the Indian currency was found 25 paise down to 46 in opposition to greenback. According to foreign exchange dealers, the outcome of rupee hitting a low is a result of fall of Asian stocks as well as fine amount of dollar purchase done by banks.

On Tuesday, dollar was found trading mixed with uncertainty still hanging on, as traders look forward to details and outcome of rescue plan of government of United States for purchase mortgage-related assets following the current credit crisis.

In Asian trade, dollar was found easing against yen as it touched 105.31 yen from New York’s trade of 105.42. Due to public holidays, markets in Tokyo were closed.

On other hand, on Monday euro went down from 1.4796 to 1.4769, as dollar witnessed its worst single day fall against European currency. Euro even touched record high since 22nd august and prime move since 1999, as it moved to $1.4866.

While the government is discussing over the proposed $700-billion rescue plan for financial sector, dealers believe investors are still doubtful over the plan and are not sure of its effect on the crisis. Treasury economist with United Overseas Bank Group, Thomas Lam, says that the sketchy draft of the plan is little confusing for investors.

Lam added that dollar-yen is retorting to leap in oil prices across the globe. New York oil futures were found touching over a high of $16, on Monday.

David Sing at Forex Capital Management added that dollar is bearing the uncertainties surroundings the result of the rescue plan of the US government and that everyone in the market is awaiting the effects, as well as the consequences of the proposed rescue plan.

Lam feels that investors are bound to take hint from the testimony by Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke, anticipated on Tuesday and Wednesday. He said that its all will be of public interest as markets are yet to get stable and are in unpredictable stage.

There is a section of dealers that feel that market is worried about the rescue plan and its outcome, as it is feeling that the funding of the rescue plan will prove to be lot more tricky and could pressurize US currency, which could further lead to consideration on rate hike by Federal Reserve for strengthening the currency. The section of market is sensing rate cute by US in order to boost the economic conditions and the disturbances.

While there are some who are not sure about the plan, President George Bush and Paulson after disclosing the rescue plan are now looking forward to the congress for approving the suggested idea.

On Monday, US dollar moved down against euro as it touched a three-week. The lows hit by the greenback is the result of concerns regarding the outcome of the $700-billion bailout plan of the government of united states, which is designed to soothe the worldwide credit crisis.

Euro moved up against dollar to a high of $1.4660, which is the highest level touched since 1st of September.

Director of currency research at Action Economics in Tampa, Florida, Ron Simpson said that it is hard to guess the result of the rescue plan of US government. Ron added that one can only estimate the amount it will charge, also that the scenario of economic position of US is not that great with all the uncertainty circling around.

On Monday, dollar went down against euro and yen. Greenback fell with investors looking forward to specifications of sketched US rescue of $700 billion from shocking mortgage debt. Investors also await the effect of the plan in helping the credit crisis.

Stating that the rescue is required for guarding the economy of United States, Bush administration forwarded the rescue plan to congress asking for power to deal with the credit crisis.

According to the proposed plan, after cutting down short selling and assuring mutual funds for soothing down economical markets, Government could get hold of home and commercial mortgages worth $700billion along with correlated assets from the banks of United States.

Henry Paulson, U.S. Treasury Secretary, said that under the rescue plan even foreign banks will be to drop off bad financial assets. The plan is intended to reinstate the order in shocking credit crisis.

According to chief Forex strategist at JPMorgan Chase Bank in Tokyo, Tohru Sasaki, after the proposed plan market has moved out of the alarming stage. However, he also added that with market being in fixed state and with no definite idea on the effect the plan is going to have on crisis, it is soon to say that the problems are resolved.

Following a cycle of action taken by government of United States that flickered rally in financial shares of US, yen was found regaining its base against euro and greenback. Whereas, Monday saw a low trading in Asian trade by U.S. stock index futures, which hinted that US stocks will return its gains from Friday’s rally. Some investors believe that, in spite of a gain of 2 percent in Tokyo’s Nikkei share average as well as a gain in other stock markets, this situation could have impelled investors towards buying of yen in Asian trade.

Dollar touched a 0.8 percent of drop as it moved to 106.61 yen after falling from a level of 108.04 on EBS. Whereas, euro moved 0.8 percent up against dollar and touched $1.4516, but stumbled against yen by 0.5 percent with 154.73 yen.

Many analysts say that it is hard to judge the outcome of the plan as many questions are yet to be answered, such as the price that will be paid for toxic debts by government of United States as well as what time will the buying commence.

Chief economist at Sumitomo Mitsui Bank, Etsuko Yamashita, said that the plan isn’t a complete solution to the problems of banking zone. He also believes that market needs to be vigilant. Yamashita called remarks made by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, while testifying in front of congress regarding market economic outlook, could sway the reaction of the market.

The rescue of plan of government of United States pursues the chaotic developments that changed the Wall Street, including sale of Merrill Lynch & Co, takeover of insurer American International Group by government and fall of Lehman Brothers.