Rising euro cheers exporters

Traders book forward deals to benefit from bullish European currency.

A sharp appreciation of the euro against the dollar has led exporters, invoicing their receivable in the European currency, to strike short-term forward contracts.

Exporters, who had invoiced their receivable in the euro, are getting good value for their proceeds by booking the euro receivable in the forward market. Incidentally, the rupee has depreciated against the euro, falling from Rs 58.48 to Rs 60.12 this week.

The dollar was trading at a record low against the euro at $1.5103 on Thursday. It had breached the crucial barrier of $1.50 early this week.

A rise in the euro against the dollar has also led to a sharp appreciation of the rupee against the euro. This is because the rupee has been depreciating against the dollar following a strong demand for dollars in the domestic market.

Following a sharp depreciation of the dollar against all major currencies globally, exporters, who have businesses in Europe, had shifted from invoicing in the dollar to the euro. This was in line with all other currencies as the dollar also lost against the rupee over a year by 9-10 per cent.

By booking euro receivable, exporters are selling euros and buying dollars and with the dollars, they are buying rupees. Eventually an exporter is selling euros against rupees. Since the deal involves buying of dollars in one lag and selling in another, dollar gets cancelled.

Dealers said usually the rupee moved in tandem with the euro and the pound against the dollar. However, the extent of appreciation of the euro to the dollar has been very sharp and the rupee depreciated against the dollar in the domestic foreign exchange market.

A strong dollar demand from importers and a lack of fresh inflows from portfolio investors (foreign institutional investors) have led to deprecation of the rupee against the dollar.

According to market sources, most of the exporters had shifted to invoicing their export proceeds in non-dollar currencies such as the euro and the pound.