Currency Blog

Last week in the currency markets was incredibly turbulent, with major central banks making unexpected and significant decisions. From the Bank of Japan’s surprising interest rate hike to the Swiss National Bank’s unexpected rate cut, and the Federal Reserve’s leaning towards a hawkish stance in its projections to the Bank of England’s dovish voting pattern, these actions collectively created a highly volatile trading atmosphere.

Following a turbulent week, Dollar eventually asserted its dominance and ended as the stronger performer. The new dot plot accompanying the Fed’s rate decision to keep the rate steady at 5.25-5.50% might have initially been perceived as dovish. Fed maintained the projection of three rate cuts this year, tentatively placing the first reduction in June.

The rupee hit an all-time low of 83.43 near the end of the session and fell 0.7% this week, the steepest decline in seven months pressured by a drop in the offshore Chinese Yuan and strong local dollar demand close to the end of the session. While the weakness in the yuan was pressuring the rupee since the start of the session, aggressive dollar buying in the final few minutes drove it past previous lows.

The closing days of March are likely to be critical for the rupee after Friday’s price action. Additionally, a lack of substantial dollar inflows and a rise in the dollar index also hurt the rupee. Meanwhile, dollar-rupee forward premiums fell, with the 1-year implied yield down 4 bps at 1.54%, its lowest level in nearly 4 months. Forward premiums were pressured by persistent receiving interest and an uptick in near-maturity US bond yields.

India’s foreign exchange reserves opens new tab rose for a fourth straight week to hit a record high of $642.49 billion as of March 15, central bank data showed on Friday. RBI has chosen to absorb most of these flows to avoid a sharp appreciation in the rupee. A large reserves pile gives the central bank the ability to manage the currency during periods of market volatility. India’s forex reserves, including the central bank’s forward holdings, can now cover more than 11 months of imports, a nearly two-year peak. The forex reserves were boosted by the maturity of a 5 billion dollar/rupee swap that matured on March 11.


The rupee might strengthen the entire week, rebounding from Friday’s record low, aided by likely intervention from the central bank and an uptick in the offshore Chinese Yuan. The rupee’s recent decline will likely be short-lived with expectations of RBI intervention supporting the currency. The rupee might be back in the range of 83.10 – 83.50 in the current week

Sentiment however regarding the USD is likely better at least for the moment than it was in the middle of the previous month. Financial institutions still believe the Federal Reserve will likely cut interest rates a couple of times, and perhaps even believe the Fed’s optimism of three Federal Funds Rate cuts is still possible. The US will present GDP numbers this coming Thursday and Core PCE Price Index data this week.

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