Currency Blog

Dollar index

  • Dollar maintained its dominance throughout most of the week, lifted by the global risk-on wave.
  • Inflation data stood at the heart of market speculation, particularly in the US, where stronger-than-anticipated consumer and producer price indices prompted traders to reassess the likelihood of an early Fed rate cut.
  • On one front, consumer inflation stubbornly persisted at elevated levels, signaling a pause in disinflation progress. Similarly, PPI readings exceeded expectations, indicating upstream inflationary pressures. These inflationary trends, coupled with January’s sharp decline in retail sales, suggest that the high interest rates and inflation are starting to weigh on consumer expenditure. In contrast, regional Federal Reserve surveys indicated notable improvement in manufacturing sentiment, injecting a measure of optimism into the economic outlook.
  • Market expectations for a Federal Reserve rate cut in May have been significantly adjusted. Fed fund futures now show more than 60% likelihood of a hold.

Rupee

  • In the week that the foreign exchange data pertains, the rupee fell 0.1% against the dollar and traded in a range of 82.88 and 83.07
  • India’s trade deficit narrowed in January, driving mild rupee gains even with the backdrop of a stronger dollar and net capital outflows during the month.
  • India’s foreign exchange reserves opens new tab snapped a two-week gaining streak and stood at $617.23 billion as of Feb. 9, coming off a one-month high.

Outlook

Dollar index rebounded and rose by 1% up till now. Robust data from the US has led to expectations of a delay in Fed rate cut cycle which was anticipated to begin from Mar’24. Fed officials too have been favouring a wait and watch mode before starting the monetary policy easing cycle.

USDINR spot remained largely range-bound this month and appreciated by 0.03%. This is particularly important since rupee gained despite a stronger dollar.

The strength in USDINR is underpinned by India’s robust macro-fundamentals such as strong domestic growth as well as manageable external trade deficit.

Apart from this, debt inflows into India have been accelerating for the last few months, ahead of India’s inclusion in the JP Morgan global bond index which is also contributing to the strength in the domestic currency. Range-bound oil prices too have benefitted the rupee.

We believe the trend of sideways is likely to continue in the near-term. Rupee is likely to trade in the range of 82.80-83.20 over the current week.

Dollar index

  • Dollar maintained its dominance throughout most of the week, lifted by the global risk-on wave.
  • Inflation data stood at the heart of market speculation, particularly in the US, where stronger-than-anticipated consumer and producer price indices prompted traders to reassess the likelihood of an early Fed rate cut.
  • On one front, consumer inflation stubbornly persisted at elevated levels, signaling a pause in disinflation progress. Similarly, PPI readings exceeded expectations, indicating upstream inflationary pressures. These inflationary trends, coupled with January’s sharp decline in retail sales, suggest that the high interest rates and inflation are starting to weigh on consumer expenditure. In contrast, regional Federal Reserve surveys indicated notable improvement in manufacturing sentiment, injecting a measure of optimism into the economic outlook.
  • Market expectations for a Federal Reserve rate cut in May have been significantly adjusted. Fed fund futures now show more than 60% likelihood of a hold.

Rupee

  • In the week that the foreign exchange data pertains, the rupee fell 0.1% against the dollar and traded in a range of 82.88 and 83.07
  • India’s trade deficit narrowed in January, driving mild rupee gains even with the backdrop of a stronger dollar and net capital outflows during the month.
  • India’s foreign exchange reserves opens new tab snapped a two-week gaining streak and stood at $617.23 billion as of Feb. 9, coming off a one-month high.

Outlook

Dollar index rebounded and rose by 1% up till now. Robust data from the US has led to expectations of a delay in Fed rate cut cycle which was anticipated to begin from Mar’24. Fed officials too have been favouring a wait and watch mode before starting the monetary policy easing cycle.

USDINR spot remained largely range-bound this month and appreciated by 0.03%. This is particularly important since rupee gained despite a stronger dollar.

The strength in USDINR is underpinned by India’s robust macro-fundamentals such as strong domestic growth as well as manageable external trade deficit.

Apart from this, debt inflows into India have been accelerating for the last few months, ahead of India’s inclusion in the JP Morgan global bond index which is also contributing to the strength in the domestic currency. Range-bound oil prices too have benefitted the rupee.

We believe the trend of sideways is likely to continue in the near-term. Rupee is likely to trade in the range of 82.80-83.20 over the current week.

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