USD/INR – The Indian rupee opened higher against the U.S. dollar after the Federal Reserve once again signaled it will take a patient approach to further rate increases, prompting a decline in the dollar. Fed’s indication that it was flexible on the balance sheet reduction path further weighed on dollar. The rupee opened at 70.95 to a dollar at opening versus its previous close of 71.1175. The dollar index fell to three-week lows, U.S. equities surged, and Treasury yields cooled after the Fed said in light of recent global economic and financial developments and muted inflation pressures, the central bank will be patient in relation to any future rate adjustments.
EUR/USD – The euro climbed above the $1.15 level on Wednesday as the dovish Fed appeared to eclipse for now weakening growth in the euro zone. EUR/USD has been in a choppy 1.1200-1.1600 range since late October, but there are signs a topside test could be in the wings. Fed expectations have completely changed, from resolutely hawkish in Q4 2018 to Wednesday’s ‘patient’ outlook. Meanwhile the sharp downgrade to Germany’s 2019 growth forecast yesterday only confirmed earlier reports and a subdued outlook for the rest of the EU has been priced in. There was some good news, with upbeat German consumption expectations and the French economy beating low predictions in Q4. The U.S.-China trade talks are a major risk, but an agreement to keep talking looks likely, which would be EUR-neutral – a breakdown in talks would send the USD higher on safety flows. EUR/USD was last trading at $1.1505.
GBP/USD – Sterling, which is grappling with troubles of its own on uncertainty over a deal to avoid a chaotic British exit from the European Union, was steady at $1.3130. British Prime Minister Theresa May is preparing to entice Labour MPs to support her Brexit deal with a cash injection into deprived areas that supported Leave, as reported. Labour MPs who could potentially back her Brexit deal are being wooed with the promise of local investment, including spending on former mining communities, as per the report.
USD/JPY – The USD traded broadly weaker overnight after the Federal Reserve policy meeting surpassed dovish market expectations. USD/JPY fell back below 109.00 to 108.81, but the downside has been limited despite the relatively significant shift in the Fed’s bias, suggesting the market could be setting up for another rally, and possibly test above 110.00 again. That said, and even with more players looking to go long, USD/JPY has traded in a relatively tight 107.50-110.00 range since Jan 4, following the previous day’s flash crash to 104.10. This range could continue to hold, especially with the Fed more dovish and U.S. yields looking for a base. USD/JPY will also be looking for a base, however, and it could be as close as the 108.50 area, which is already starting to attract some bids. Japanese importers and some institutional investors will be among the buyers on dips, though interest from the latter group may be limited ahead of Japan’s fiscal-year end in March.
Currency Range for today
Important data releases today
|31-Jan-19||2:25 PM||EUR||German Unemployment Change (Jan)||-11K||-14K|
|31-Jan-19||8:30 PM||USD||New Home Sales (Nov)||560K||544K|