Rupee Opens Flat After Fed Minutes; Powell Speech Awaited

Rupee Opens Flat After Fed Minutes; Powell Speech Awaited

22 Aug 2019 09:12 AM

USD/INR – The Indian rupee opened flat against the dollar after the Federal Reserve’s latest meeting minutes revealed that most policymakers viewed last month’s rate cut “a recalibration of the stance of policy or mid-cycle adjustment.” The rupee opened flat at 71.56 compared with its previous close. The dollar index and the long-term Treasury yields ended marginally higher yesterday after the minutes of the Fed July minutes revealed that most officials viewed the quarter-point policy easing a part of a recalibration of the policy “in response to the evolution of the economic outlook over recent months.” Policymakers labelled the rate cut “a mid-cycle adjustment,” echoing remarks made by Powell after last month’s policy outcome. Meanwhile, minutes of India’s Monterey Policy Committee’s August meeting revealed that the Reserve Bank of India’s head reckoned that more interest rate cuts were needed to boost “dwindling” domestic demand and support investment activity. The MPC had at that meeting cut the policy rate by an unconventional 35 basis points to 5.40%, the lowest in more than nine years.

EUR/USD – Investors are left wanting after the July Fed minutes sent mixed messages and they now look to Jackson Hole for a catalyst. The minutes stated that a couple of Fed members preferred a 50bps cut while several preferred to maintain the current target. On discussion of monetary framework it was agreed that the current framework served the central bank well while a number of policymakers said the Fed could have been more aggressive with QE. The minutes' impact on EUR/USD was limited as the meeting took place ahead of extreme volatility from early August. Investors are going to be more focused on the Jackson Hole meeting and especially Fed Chair Powell's remarks on Aug. 23. Investors will look to see if Powell sticks to his "mid-cycle adjustment" views or if he will lean more dovish in light of recent market volatility and increased concerns about recession. EUR/USD was last trading little lower at 1.1088.

GBP/USD – Against the greenback, sterling was little changed at $1.2132. French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain's exit from the EU. British Prime Minister Boris Johnson is due to meet Macron in Paris on Thursday. German Chancellor Angela Merkel challenged Britain to come up with alternatives to the Irish border backstop within 30 days after meeting Johnson on Wednesday. Johnson, who won the premiership a month ago, is betting the threat of "no-deal" Brexit turmoil will convince Merkel and Macron that the EU should do a last-minute deal to remove the Irish backstop.

USD/JPY – The dollar held steady at 106.45 yen following a 0.36% gain on Wednesday, its biggest since Aug. 13. The dollar held gains on Thursday after minutes from the Federal Reserve's last policy meeting hosed down some aggressive expectations the central bank would embark on a series of deep interest rate cuts. Investors await U.S. Federal Reserve Chairman Jerome Powell's speech at Jackson Hole on Friday for signs of just how far the U.S. central bank is prepared to lower rates. His comments are of particular interest after an inversion in the Treasury yield curve highlighted the risk that the U.S. economy may fall into recession. While the Fed's minutes tempered some dovish expectations, markets still broadly expect further rate cuts as growth slows.

Currency Range for today

Currency Pair Lower Upper
USD/INR 71.40 71.90
EUR/INR 79.00 79.80
GBP/INR 86.55 87.35
JPY/INR 0.6700 0.6760

Important data releases today

Time Ccy Event Forecast Previous
1:00 PM USD German Manufacturing PMI (Aug) 43.0 43.2