Feb 27 2019

Rupee opens little changed against the dollar after Fed comments

USD/INR – The Indian rupee opened little changed against the U.S. dollar even though the dollar index slipped after Federal Reserve Chair Jerome Powell repeated that a patient approach to monetary policy was warranted. The rupee opened at 71.11 against the dollar compared with its previous close of 71.0625. Powell, in his testimony to U.S. Senate Banking Committee, said that crosscurrents and conflicting signals had prompted the Fed to take a more patient approach and that the U.S. central bank was in no rush to make a judgment about changes in policy. The dollar was further pressured on Tuesday by data that revealed that U.S. housing starts declined 11.2% in December. Meanwhile, U.S. consumer confidence improved in February, data released by The Conference Board showed.

EUR/USD – Fed Chairman Powell did nothing to dissuade EUR/USD bulls after reiterating a patient monetary policy stance, keeping intact the snail’s-paced rally that lifted the pair to its highest in nearly three weeks. Though EUR/USD backed-off the high when Powell began speaking, it bounced. Surprisingly strong French February consumer confidence and as-expected German March GfK consumer sentiment encouraged longs. Both suggest improving or stabilizing euro zone growth. Italian and French February manufacturing PMIs are due Thursday and euro zone February HICP on Friday. Downside surprises could lead EUR/USD to erase much of its recent rally since it would increase expectations that the ECB will strike an even more cautious tone at next week’s meeting. However, upside data surprises could drive EUR/USD higher. EUR/USD was last trading at $1.1385 after touching a high of $1.14.

GBP/USD– Sterling had rallied on Tuesday after British Prime Minister Theresa May offered lawmakers the chance to vote on delaying Brexit, opening up the possibility of avoiding a chaotic no-deal departure from the European Union. The pound was up 0.1% at $1.3250 after surging more than 1% overnight to a five-month peak of $1.3288. Rising hopes for a Brexit delay or even a second referendum have pushed GBP/USD higher, but a new vote might not be a one-way trip higher. While a new vote on Brexit would likely lift the pound in the near-term, it would hardly be a panacea for sterling UK economic growth in the medium-term. A second vote is expected to take over a year to set up. Within that waiting period, as political and economic uncertainty mounts, foreign investment in the UK would likely grind to a halt, limiting the BoE’s ability to raise rates.

USD/JPY The dollar was little changed at 110.60 yen after shedding 0.4% the previous day. Fed Chairman Powell’s reasonably upbeat economic appraisal helped catch a falling USD/JPY, though much of the heavy lifting was done by strong February U.S. data that arrested a slide in Treasury yields. Prices slid with help from yesterday’s horrible December housing starts, but February Philly Fed non-manufacturing and February consumer confidence both beat expectations. Those reports meshed with Powell’s reasonably upbeat message, helping yields recover. But 10-year Treasury-JGB spreads are still about 5bp. Given a strong positive correlation between USD/JPY and those yield spreads, and the Fed’s dependence on more recent data, the next major event risks are Friday’s February ISM manufacturing index and U.S. Michigan sentiment.

Currency Range for today

Currency Pair Lower Upper
USD/INR 70.8571.35
EUR/INR 80.5081.30
GBP/INR 93.5594.35
JPY/INR 0.63950.6455

Important data releases today

Time Ccy Event Forecast Previous
8:30 PM USD Pending Home Sales (MoM) (Jan) 0.8% -2.2%
9:00 PM USD Crude oil Inventories 2.842M 3.672M