From the end of October till 17-11-21, the rupee has appreciated by 0.7% against the dollar, the best performing currency in Asia. As a result of a rise in the by 2.40% in the referred period, the rupee posted an appreciation of 3.62%, 3.23% and 1.79% respectively against euro, GBP and JPY respectively. The depreciation of the major currencies against the rupee is set to continue on the expectation of Fed rate hikes in the second half of CY 2022.
After the US retail sales data rose 1.70% in October against the consensus forecast of 1.4%, the dollar index surged to a 16-month high of 95.60 on Tuesday but the rupee remained rangebound supported by overall gains in the local equity market. The rise in retail sales and prices pointed to a further increase in inflationary pressures and the Fed may have to respond to recent inflation data by tightening monetary policy more than previously planned.
In the second half of December, one can expect selling by the foreign investors in equities and bonds for profit-booking and a slide in the rupee toward 75.20-30 level can be expected. Till such time, the rupee shall hold the range and trade sideways but will be guided by the crude prices for direction.
Strong consumer spending, as well as spillover effects of rising prices, prompted a Federal Reserve Bank President to call for a more hawkish direction from the Central Bank to prepare in case inflation persists longer than anticipated and maintained the projection that the Fed will need to raise rates twice in 2022. Yen fell more than 4-1/2-year low and it touched 114.97 on Wednesday, lowest since 14-3-2017.
Oil futures plunged after falling US gasoline stocks raised fears that the Biden administration might resort to releasing emergency reserves to cap soaring gasoline prices. The latest data from API pointed to a 2.8 million barrel decline in gasoline stocks in the week ended 12-11-21 much worst than the 600, 000 barrel decrease estimate.