Dollar retraces despite Fed remains hawkish

By Gaurang Somaiya

Rupee consolidated in a narrow range and volatility remained low ahead of the important RBI and Fed meeting minutes that was released last week. On the domestic front, the RBI meeting minutes showed that the governor reiterated about the current setting of policy is moving in right direction with growth holding firm and inflation nearing the bank’s target. Come from Sports betting site VPbet

 On the other hand, dollar fell against its major crosses after the Federal Reserve officials indicated that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation. Fed officials consider current policy to be restrictive, so the big question going forward will be how much it will need to be relaxed both to support growth and control inflation. 

FOMC meeting minutes also showed that few members thought of the possibility that interest rates have reached their maximum, suggesting a cautious approach moving forward. Market participants are discounting that rate cuts if happen, could be in the June meeting. 

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Economic forecasts are now more optimistic than thought previously in December, suggesting no convincing reason for the Fed to cut rates sooner. Preliminary manufacturing PMI for February saw a marginal increase to 51.5 from 50.7, signalling a slight improvement in the sector growth.

 However the preliminary Services PMI dropped to 51.3 from 52.5, reflecting a reduction in the pace of expansion within the services sector. Labour market showed little strength with initial jobless claims coming in at 201K, lower than consensus of 218K.

This week, on the domestic front focus will be on the Q3 GDP(YoY) number; expectation is that the number could come in at 7.3%. But any retracement in the growth number could keep the rupee weighed down. 

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Dollar was weighed down against the US dollar even after the FOMC meeting minutes were hawkish. From the US, preliminary GDP number will be important to watch and a weaker-than-expected economic number could raise expectation of rate cuts by the Fed in this year. 

We expect the USDINR(Spot) to trade sideways and a trend in the currency could be seen only on a break of the range of 82.80 and 83.30.

(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)

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