Rupee Opens Higher As Dollar Index Slides To Three-Month Low

Rupee Opens Higher As Dollar Index Slides To Three-Month Low

25 Jun 2019 09:12 AM

USD/INR – The Indian rupee opened higher against the U.S. currency, helped by the dollar index’s fall to fresh three-month lows. The rupee opened at 69.32 to a dollar compared with its previous close of 69.35. The dollar index edged lower in Asia trading on Tuesday, headed for the sixth day of losses. The gauge has now lost about 1.7% after the Federal Reserve indicated that it was prepared to cut the federal funds rate to support economic growth. U.S. President Donald Trump and Chinese President Xi Jinping will be meeting at the G20 summit in Japan, which runs from this Friday to Saturday. Meanwhile, Brent crude futures retreated from three-week highs. The U.S. imposed new sanctions on Iran on Monday, targeting the country’s Supreme Leader Ayatollah Ali Khamenei and other top officials.

EUR/USD – The euro hit a three-month high of $1.1405 in early Asia trade. It has gained 2.0% from a two-week low of $1.1181 touched a week ago as the dollar has lost steam. While yesterday's German IFO was the lowest since 2014 it beat the consensus forecast, as did the current conditions component. The better-than-expected outcome suggests German industry could be bottoming out. Results of the Dallas Fed's June manufacturing index fell sharply to -12.1 from May's -5.3, which exposes downside risks to U.S. growth. The slowing economy increases the odds of Fed rate cuts. Markets have fully priced in a 25 bps cut for the Fed's July 31 meeting and are even factoring in chances of a 50 bps move. Additional Fed cuts are expected in 2019 and 2020. As a result German-U.S. spreads are extending their tightening trend today.

GBP/USD – The British pound remains dogged by Brexit concerns as eurosceptic Boris Johnson is seen as likely to win a majority of votes from Conservative party members who will decide the next leader and prime minister. Johnson reiterated his promise to take Britain out of the European Union on Oct. 31, with or without a deal. The pound fetched $1.2745. While the Bank of England sounded less dovish than other central banks last week, providing some support to the British currency, the pound's moves are being driven by developments elsewhere. With the dollar suffering a selloff after the Federal Reserve encouraged expectations of a July rate cut, the pound was able to briefly touch a one-month high against the greenback in the previous session.

USD/JPY – The dollar was on the defensive against the yen at 107.04. USD/JPY longs find themselves in an uncomfortable position heading into the G-20 Trump-Xi trade talks late this week. The slide in Treasury-JGB yield spreads since November is eroding the USD's attraction, though 2-year spreads near 2% remain rich compared to negatively yielding bunds. Even 10-year BTP yields only offer a 10bp premium to Treasuries. This lack of attractive risk-free alternatives cushions USD/JPY's fall, but the U.S. and global growth outlooks need to improve to reverse falling rate spreads and the USD/JPY downtrend. The most likely way for that to happen is de-escalation of U.S. and China protectionist measures after the June 28-29 G-20 meetings. A truce could support USD/JPY, but only temporarily unless an eventual unwinding of tariffs looks likely.

Currency Range for today

Currency Pair Lower Upper
USD/INR 69.10 69.60
EUR/INR 78.55 79.35
GBP/INR 87.80 88.60
JPY/INR 0.6430 0.6490

Important data releases today

Time Ccy Event Forecast Previous
7:30 PM USD CB Consumer Confidence (Jun) 131.2 134.1
7:30 PM USD New Home Sales (May) 680K 673K


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