Rupee Opens Lower On Uncertainty Over Future Fed Rate Cuts

Rupee Opens Lower On Uncertainty Over Future Fed Rate Cuts

19 Sep 2019 09:22 AM

USD/INR – The Indian rupee opened lower against the dollar after the Federal Reserve cut rates once again but cast doubts on further easing. The rupee opened at 71.35 compared with its previous close of 71.23. Asian currencies were broadly lower on Thursday after the dollar index advanced yesterday following the Fed decision. While the Fed cut rates by quarter percentage points, the monetary authority’s dot-plots indicated that rates were likely to be on hold for the rest of this year and for the whole of 2020. Only 7 out of 17 Fed officials expect one more rate cut this year. Further, the decision to cut rates was not unanimous. Two Fed members, who opposed the July rate cut, dissented on the easing, while one Fed member wanted a more aggressive 50-basis-points reduction. The Treasury yield curve flattened following the Fed outcome and yields on the front-end of the curve rose.

EUR/USD – The dollar rose 0.3% on the euro after the Fed decision and steadied at $1.1035 on Thursday. Events in Europe look set to have a significant impact on EUR/USD in Q4. U.S.-China trade headlines and related global growth implications have been the EUR/USD drivers - but they could be joined by negative EZ factors in Q4. The EU warned Wednesday that Britain is heading for a damaging no-deal Brexit on Oct 31. Yet another delay, leading to a UK election, would only fuel uncertainty. Italy cut its 2019 and 2020 growth forecasts yesterday, opening the door to an expansionary 2020 budget and a possible showdown with the EU in November.

GBP/USD – Sterling fell after British prices in August grew at their slowest pace since late 2016, while concerns about whether a last-minute Brexit deal was achievable also weighed on the currency. Prices of goods and services paid by consumers rose at an annual rate of 1.7% in August after a 2.1% increase in July,official data showed. A poll of economists had expected a rate of 1.9%. The lower-than-forecast rate will be a welcome boost for British consumers and comes ahead of the Bank of England's monetary policy meeting on Thursday. The BoE targets a 2% inflation rate. The pound, which hit as low as $1.2439 after the inflation data, was last down 0.2% at $1.2477. The currency had rallied to a six-week high on Tuesday of $1.2528 on the back of optimism that Prime Minister Boris Johnson was trying to secure a Brexit deal with the European Union before the Oct. 31 deadline.

USD/JPY – The greenback touched a seven-week high of 108.47 against the Japanese yen before falling to 107.86 after the Bank of Japan kept monetary policy steady on Thursday but said it would re-examine economic and price developments more thoroughly at its next policy meeting, signalling the chance of expanding stimulus as early as October. As expected, the BOJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields under a policy dubbed yield curve control (YCC). Announcing its decision, the central bank said in a statement that it was becoming necessary to pay "closer attention" to the chance that the economy will lose sufficient momentum to achieve the BOJ's 2% inflation target.

Currency Range for today

Currency Pair Lower Upper
USD/INR 71.10 71.60
EUR/INR 78.20 79.00
GBP/INR 88.35 89.15
JPY/INR 0.6585 0.6645

Important data releases today

Time Ccy Event Forecast Previous-0.2%
2:00 PM GBP Retail Sales (MoM) (Aug) -0.2% 0.2%
4:30 PM GBP BoE Interest Rate Decision (Sep) 0.75% 0.75%
6:00 PM USD Philadelphia Fed Manufacturing Index (Sep) 11.0 16.8
7:30 PM USD Existing Home Sales (Aug) 5.37M 5.42M