By Gaurang Somaiya
Rupee earlier in the month came under pressure and fell to fresh all-time lows after data showed trade deficit widened to the highest level in 10-months to $24.2 in August as compared to $20.7 billion in the previous month. At the end of the week, there was an announcement that came in from JP Morgan to include India into its emerging market bond index. The index provider will add the securities to the JPMorgan Government Bond Index-Emerging Markets starting June 28, 2024 and will have a weightage of a maximum weight of 10% on the index. The inclusion is likely to prompt flows of close to $30billion thereby lending strength to the rupee. In line with expectation the Federal Reserve held rates unchanged but hinted for one more rate hike in this year. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. The central bank’s main measure of inflation is projected to drop to 3.3% by the end of this year, to 2.5% next year and to 2.2% by the end of 2025. Dollar rose against its major crosses after the release of policy statement.
This week, on the domestic front, no major cues are lined up and it will continue to be the global factors that will influence the rupee. Dollar that gained after the FOMC policy statement extended its gains following economic numbers from the Euro zone and UK came in below estimates. From the US, market participants will be keeping an eye on the durable gods, final GDP and the all-important core PCE index to gauge a view for the currency. Better-than-expected economic numbers from the US is likely to support the dollar. For the week, we expect the USDINR (Spot) to trade in the range of 82.50 and 83.20.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)
