Rupee Opens Higher On Rising Bets For 50 BPs Fed Rate Cut

Rupee Opens Higher On Rising Bets For 50 BPs Fed Rate Cut

19 Jul 2019 09:11 AM

USD/INR – The Indian rupee opened higher against the dollar as comments by two Federal Reserve policymakers boosted the likelihood of a half a percentage-point U.S. interest rate cut this month. The rupee opened at 69.75 to the dollar compared with its previous close of 68.95. The dollar index tumbled in the New York session yesterday after traders took comments by New York Fed President John Williams as endorsing aggressive rate action at the central bank’s meeting on July 30-31. When rates and inflation are low, policymakers cannot afford to wait for economic problems to materialize, he added. His comments sent the odds of a 50 basis-points rate at this month’s Fed meeting to above 60%. Those odds fell back to near 45% after the New York Fed clarified that Williams’ speech “was not about potential policy action” at the upcoming Fed meeting.

EUR/USD – The euro also slipped 0.15% to $1.1265 from $1.1282. The euro dipped on Thursday following a report the European Central Bank staff is studying a potential change to its inflation goal, while the dollar was little changed amid bets the Federal Reserve would lower interest rates in two weeks. The euro dipped against the greenback following a report that the ECB staff is studying a potential change to the bank's inflation goal of "near 2%." Such a move would potentially leave the door open for more ECB stimulus to continue for a longer period, which would exert downward pressure on the single currency.

GBP/USD – The pound rebounded after stronger-than-expected retail sales numbers, also finding support from a vote by lawmakers to make it harder for Britain's next prime minister to try to force a no-deal Brexit. MPs approved the final wording of the plan, although an already stronger sterling reacted little. Explaining sterling's strength, analysts also cited media reports which said EU chief negotiator Michel Barnier was open to alternative border plans for Ireland - a major sticking point in Brexit negotiations. The Irish prime minister said likewise. But many expect tumultuous times for sterling as the Brexit deadline nears. GBP/USD was last trading at 1.2550.

USD/JPY – The dollar stood at 107.52 yen, up 0.15% in early trade, having hit a three-week low of 107.21 on Thursday. USD/JPY is tumbling with U.S. yields after Fed's Williams and Clarida made comments suggestive of a 50bp FOMC cut this month. Price action leaves the pair with little support until June's 106.78 low, which was the initial reaction to the escalating U.S.-China trade conflict. The Fed may be taking a big leap in overlooking a string of much-improved economic data due to concern that they must be ahead of a trade-led global slowdown. This has raised the probability of a 50bp rate cut July 31 to 65% versus half that this morning, and 20-25% probabilities earlier this week. And while the expected aggressive easing is helping stocks, the drag on USD/JPY from falling Treasury-JGB yield spreads is dominating.

Currency Range for today

Currency Pair Lower Upper
USD/INR 68.60 69.10
EUR/INR 77.10 77.90
GBP/INR 85.90 86.70
JPY/INR 0.6365 0.6425

Important data releases today

Time Ccy Event Forecast Previous
5:00 PM INR Bank Loan Growth - 12.0%
5:00 PM INR Deposit Growth - 10.0%
5:00 PM INR FX Reserves, USD - 429.91B


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