Rupee Opens Lower As Asian Peers Weaken Before Powell Speech

Rupee Opens Lower As Asian Peers Weaken Before Powell Speech

23 Aug 2019 09:18 AM

USD/INR – The Indian rupee opened lower against the U.S. currency amid broad dollar strength ahead of the Federal Reserve Chairman Jerome Powell’s highly anticipated speech. The rupee opened at 71.92 to a dollar, compared with its previous close of 71.81. Asian currencies slipped on Friday and the dollar index edged higher. The Chinese yuan was once again at the centre of moves in regional currencies, falling to new multiyear lows. The onshore yuan was down to 7.0934 and the offshore yuan was hovering near 7.10 to a dollar. The Chinese central bank fixed the yuan daily reference rate at 7.0572 compared with 7.0490 yesterday. Meanwhile, Treasury yields edged higher for the third day on Friday ahead of Powell’s speech. The Fed Chair’s speech at Jackson Hole later in the day comes at a time of increasing fears of a recession. Powell, at the time of delivering a quarter percentage rate cut last month, had warned against expecting that it was the beginning of a prolonged easing cycle. Those thoughts were reinforced by the July Fed minutes released earlier this week and by two Fed officials yesterday.

EUR/USD – EUR/USD is holding near the middle of its overnight range, around 1.1090, as markets await Friday's Jackson Hole speech by Fed Chair Powell, which could pose significant risks to the euro after Wednesday's FOMC minutes release came out less dovish tack than markets expected. Currently, the market is pricing in at least two more Fed rate cuts by December 2020. If Powell clings to his mid-cycle view on rate adjustments, EUR/USD should slide to new 2019 lows and the effects of a stronger USD, akin to a rate U.S. hike, will be seen as slowing the U.S. economy -- but also muting global growth. For now, significant options interest between 1.1000 and 1.1200, is keeping EUR/USD anchored by 1.1100.

GBP/USD – The pound was on course for its best day in months on Thursday after traders interpreted comments from German Chancellor Angela Merkel to mean that a solution to the Irish border problem could be found before Britain leaves the European Union on Oct. 31. Traders have been betting heavily against the currency this summer and so any glimmer of a breakthrough in Britain's efforts to convince the EU to renegotiate the deal is likely to send the pound jumping, analysts and traders say. Merkel on Thursday backtracked on earlier comments that appeared to set Britain a 30-day deadline to find a solution to the so-called Irish backstop. Instead she said that the UK could have time until the Brexit deadline of Oct. 31 to find a compromise. Sterling jumped to a three-week high of $1.2265 after Merkel's comments before settling around $1.2235.

USD/JPY – The dollar was little changed at 106.55 yen on Friday. The dollar fell 0.2% versus the yen on Thursday following slightly weak data on the U.S. manufacturing sector. USD/JPY was being kept aloft by lessening of near-term Fed easing expectations that firmed Treasury-JGB yield spreads, but weak PMIs have reversed those early flows. Gains were already limited by CNY's quickening fall and China's commitment to retaliate against new U.S. trade tariffs set for Sept. 1, which favored safe-haven flows into the yen. Much of the focus is now is on whether Fed Chair Powell can convince markets that less easing is needed than has been priced in this month. But if Sept. 1 comes and the U.S. tariffs increase is met by Chinese retaliation and the PBOC allowing further CNY weakening to dampen the cost of U.S. tariffs, Treasury yields and the USD/JPY will stumble on rising trade and currency war angst.

Currency Range for today

Currency Pair Lower Upper
USD/INR 71.70 72.20
EUR/INR 79.20 80.00
GBP/INR 87.55 88.35
JPY/INR 0.6720 0.6780

Important data releases today

Time Ccy Event Forecast Previous
7:30 PM USD New Home Sales (Jul) 649K 646K