Weekly Currency Blog

US Dollar emerged as the weakest performer, significantly influenced by the Fed’s projection of a cumulative 75bps rate cut for the next year. This shift in Fed’s stance considerably affected Dollar’s standing against its counterparts. Weaker than expected US 3rd quarter GDP data and a rebound in risk appetite also weighed on the dollar index. 

Rupee posted its biggest weekly loss in over two months, even as it closed stronger on Friday tracking a rise in its Asian peers and aided by dollar sales from large foreign banks. For the week, however, the currency declined 0.16%, its worst week since Oct. 6, despite the dollar index appearing to be on course for a weekly loss, pressured by rising expectations of interest rate cuts in the United States. 

Outlook for week ahead 

Most markets are closed and hence exaggerated moves are unlikely in the next few days. Friday’s US PCE data reaffirmed the falling inflation trend and led to a bout of weakness in Dollar which can continue this week. No major data is due until the New Year, and USDINR could trade sideways for this week. 

Given how the rupee has largely remained on the sidelines, amid dollar weakness, it is unlikely to see sizeable movement over the year’s final week. Rupee is expected to stay in a range between 83.05 and 83.35 and trading volumes may remain muted heading into the year-end. 

Traders will parse minutes of the December rate- setting meeting which showed panel members wanted to stay cautious about volatile food prices. The combination of resilient growth and headline CPI inflation remaining above 5% till 1QFY25, supports expectation of RBI staying on a prolonged pause. The timing of Fed policy rate cuts will also need to be considered as interest rate gap between India and US has shrunk to historical low. Given the relatively strong growth conditions in India, RBI is expected to lag the Fed in terms of timing of rate cuts as well as quantum, expect RBI’s first rate cut in August / October 2024. For USDINR to see again some volatile and volume full action it needs big trigger coming in.  

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