Rupee Opens Lower As Oil Extends Advance; Yuan Paces Decline

Rupee Opens Lower As Oil Extends Advance; Yuan Paces Decline

17 May 2019 09:10 AM
 
USD/INR – The Indian rupee opened lower against the dollar after Brent crude climbed to its highest in two weeks on rising tensions in the Middle East. The rupee opened at 70.26 to a dollar in early trades compared with its previous close of 70.0250. The nearest month Brent crude contract rose in Asia trading on Friday, adding to yesterday’s 1.2% climb amid increasing the Middle East tensions. A Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations earlier in the week. The rupee will further be pressured by the broad decline in other Asian currencies. The Chinese yuan paced decline in regional currencies on Friday after the dollar index yesterday had its best session in three weeks. Upbeat U.S. housing data and lower-than-expected weekly jobless claims boosted the dollar against its major peers. EUR/USD – The euro was steady at $1.1178 after falling to $1.1166 overnight, its lowest since May 6. EUR/USD bulls continue to grow frustrated over the difficulty in holding ground above the 1.1200 area. A raft of upbeat U.S. economic data added to their frustrations as price drops in U.S. Treasuries, eurodollar and fed funds eroded some of the earlier gains and reduced the odds of Fed rate cuts. German-U.S. yield spread widening is adding to the dollar's allure as investors take advantage of the greenback's yield advantage. Political concerns ahead of EU elections due May 23-26 and the Italian government's attacks on EU rules have led investors to shy away from the euro.  While those factors present downside risks to EUR/USD, a break to new trend lows seems unlikely. Short-term U.S. rates markets still price in Fed cuts while net-short euro positions remain elevated.

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