USD/INR Ruling Firm as Fed Minutes Signal Faster Tapering of Asset Purchases

  • by THO
  • 3 days ago
  • news
  • 1

opened the day a lot firmer at 74.5450, registering a solid gain of 15 paise/USD over its previous day’s close. The firmer trend in the currency pair is supported by the latest Fed minutes which signalled that policymakers are open to raising interest rates if high inflation persisted.

We expect the rupee to trade in the range between 74.40 to 74.80 with a weaker bias till the end of this month. Any intermittent rise in the rupee beyond the 74.40 level can only prove to be temporary. The rise in the and a possibility of two Fed rate hikes in the second half of CY 2022 shall lift the US yields higher which could push the rupee to test the weaker end of the above-suggested range.

US Treasury yields jumped due to the announcement by the White House for the re-nomination of Jerome Powell as the Fed Chair for a 4-year second term. Concerns over rising coronavirus cases in Europe and consequent lockdowns weighed on investor sentiment for riskier assets and led the investors to move towards safe-haven like the dollar. This would be a negative factor for the rupee over the medium-term.

After the US announced the release of its emergency oil reserves (Strategic Petroleum Reserve) in a bid to lower higher prices, the Brent crude prices touched a low of USD 77.58/barrel on 22-11-21. The move from the US will be coordinated with other countries including China, Japan, South Korea and India which are allegedly working on ways to reduce prices. The move by the above-mentioned countries was widely seen as a warning to major producers that they should increase production to address concerns of high fuel prices on powerhouse economies. But investors are sceptical about the effectiveness of joint reserve release. Investors were disappointed by the small size after the joint oil release by the US and other countries. Market’s attention is now turned toward the OPEC plus producer group meeting on 2-12-21 and investors fear that OPEC plus group may slow their output increase pace. is currently trading much higher at USD 82.34/barrel.

Minutes from the last FOMC meeting showed Fed officials are ready to raise interest rates if inflation continues to run high. The latest Fed minutes showed a growing number of policymakers are open to speeding up the tapering of asset purchases and move more quickly to raise interest rates if high inflation persisted.

The paying interest in the market has gained momentum with the forwards rising upto 6-month maturities. The 3-month and 6-month forward dollar premium is currently trading at 4.05% and 4.85% per annum respectively. The forward curve between the 6-month and 12-month maturity is almost flat.

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