The rupee, Through Gaurang Somaiya
When statistics revealed that the trade imbalance increased to $24.2 billion in August as opposed to $20.7 billion the month before, it put pressure on the rupee and caused it to fall to new all-time lows earlier in the month. JP Morgan announced at the end of the week that India will be included in its index of developing market bonds. Beginning on June 28, 2024, the index provider will add the securities to the JPMorgan Government Bond Index-Emerging Markets, with a maximum weight of 10%. The inclusion is anticipated to result in flows of up to $30 billion, strengthening the rupee. The Federal Reserve kept rates constant, as expected, but gave a hint that it will raise rates once more this year. Recent data suggests that the pace of economic growth has been strong. Although job growth has slowed recently, it is still substantial, and the unemployment rate is still quite low. The major inflation indicator used by the central bank is expected to decline to 3.3% by the end of this year, 2.5% the next year, and 2.2% by the end of 2025. Following the publication of the policy announcement, the dollar increased against its key peers.
Regarding the main crosses, the dollar’s rise and the Bank of England’s decision to suspend raising interest rates both put pressure on the euro and the pound. After the BoE chose to keep rates on hold, the pound decreased in value relative to the US dollar. As the British economy slowed, the BoE stopped its lengthy streak of 14 straight interest rate increases, but it made clear that it was not taking the recent drop in inflation for granted. The governor of the BoE praised the recent decline in inflation and predicted that it would continue to decline. From an August projection of 0.4%, the BoE reduced its prediction for economic growth for the months of July through September to just 0.1%. Manufacturing and services PMI preliminary score.
There are no significant internal cues planned up for this week, therefore the rupee will continue to be influenced by external factors. Following the release of economic data from the Eurozone and the UK that were below expectations, the dollar’s gains following the FOMC policy announcement were extended. Market investors will be monitoring the durable goods index, the final GDP, and the crucial core PCE index from the US to get a sense of how the currency will perform. The dollar is likely to be supported if US economic data beat expectations. We anticipate the USD INR (Spot) will trade between 82.50 and 83.20 for the whole week.
