TODAY: Wednesday, 08^th May, 2024

USD/INR:

INR likely to open around 83.50

Dollar is mildly weak, but INR has remained under pressure and risk appetite is shaky on probable pre-election jitters. Dollar Index is at 105.55, even though the Dollar is down against EUR and GBP as JPY has again started to weaken more, after the previous intervention. EUR is at 1.0740, GBP is at 1.2490 and JPY is at 155.20. US 10y yield is down to 4.45%, continuing the post-NFP rally. US equities ended flat-to-down, but Indian equities saw yet another cut in broader market indices, and financials. Nifty was down 0.6% while the BSE 500 was down 1%+. FII have been selling equities, probably to lighten their portfolio before election outcome.

USDINR has been pushing upwards despite the benign global scenario of lower US yields and stable Dollar. It seems that Indian equities and the Rupee are reflecting the concerns around the election outcome, given the low voter turnout in some key states in the ongoing election. Markets were discounting a sweeping BJP victory, which triggered hopes of significant reforms. While the low voter turnout can be due to various underlying reasons, including the severe heat, the fear is that it could mean pro-BJP voter apathy and overconfidence which can lead to uncertainty in the election outcome.  

If the election outcome does not surprise the markets, then INR is well placed to strengthen and correlate with the global Dollar trend. Given that there is an event risk now, USDINR could keep pushing towards 83.50 and above level irrespective of global developments.

MAJOR WORLD CURRENCIES:

USD:

GBP:

The GBP/USD pair trades on a softer note around 1.2500 on Wednesday during the early Asian session. The USD Index (DXY) recovers modestly to 105.40, which drags the major pair lower. The Federal Reserve’s (Fed) Philip Jefferson,  Susan Collins, and Lisa Cook are scheduled to speak later on Wednesday. The Bank of England's (BoE) interest rate decision will take centre stage on Thursday.

Minneapolis Fed Bank President Neel Kashkari said on Tuesday that it is too early to declare that inflation has stalled out, and the Fed might cut interest rates this year if price pressures ease. Richmond Fed President Thomas Barkin stated that he believes that current rates will be enough to bring inflation down and that the Fed can afford to be patient due to a strong job market. The US Fed officials reiterated that more data would be needed in the outlook for inflation returning to the 2% target before cutting rates.

Fed easing expectations have fallen a bit and lifted the Greenback against its rivals. The chance of a June cut remains steady at around 10%, while September odds have fallen to 85%, according to the CME FedWatch tool. On Friday, traders will monitor the preliminary University of Michigan Consumer Sentiment Index, which is estimated to drop from 77.2 in April to 76.0 in May.

On the other hand, the Pound Sterling (GBP) edges lower as investors focus on the upcoming monetary policy meeting. The UK central bank is anticipated to hold interest rates steady at 5.25%. However, there is speculation that the BoE will cut interest rates earlier than the Fed, which weighs on the Cable. BoE Governor Andrew Bailey said last month that he was comfortable with market expectations of two or three rate cuts for this year. 

EUR:

EUR/USD extends its losses for the second successive session, trading around 1.0750 during the Asian session on Wednesday. The US Dollar (USD) gains ground due to the expectations of the Federal Reserve’s (Fed) prolonging higher interest rates. However, the softer US labor data from the last week has reignited hopes for potential interest rate cuts by the Federal Reserve (Fed) in 2024.

On Tuesday, hawkish comments from Minneapolis Fed President Neel Kashkari have bolstered the US Dollar, consequently weakening the EUR/USD pair. Kashkari said that the most probable scenario is for rates to remain unchanged for an extended period. However, if disinflation returns or a significant weakening in the job market occurs, rate cuts could be considered.

In the Eurozone, Retail Sales (MoM) surged by 0.8% in March, rebounding from the upwardly revised 0.3% decline in February. This exceeded the expected increase of 0.6%. It marked the most significant increase in retail activity since September 2022, indicating strength in the European consumer sector. Additionally, Retail Sales (YoY) increased by 0.7% compared to the revised 0.5% drop in February. This indicates the first growth in retail since September 2022, signaling a positive shift in consumer spending trends.

The European Central Bank (ECB) is expected to begin reducing borrowing costs in June. As reported by the Business Standard, Chief Economist Philip Lane of the ECB said that recent data have strengthened his belief that inflation is edging closer to the 2% target. While many ECB officials appear to support easing measures next month, President Christine Lagarde has not suggested further cuts at this point.

Gold

Gold price attracts some buyers during the Asian trading hours on Wednesday. Safe-haven demand, fueled by geopolitical tensions and uncertainty, as well as ongoing central bank purchases, might contribute to a rally in gold.

Gold price (XAU/USD) attracts some buyers during the Asian trading hours on Wednesday. Safe-haven demand, fueled by geopolitical tensions and uncertainty, as well as ongoing central bank purchases, might contribute to a rally in gold. Nonetheless, the hawkish remarks from Federal Reserve (Fed) officials might dampen hopes for potential interest rate cuts in 2024, despite weaker-than-expected US employment reports in April. This, in turn, might drag the precious metal lower.

Later on Wednesday, the Federal Reserve’s (Fed) Philip Jefferson,  Susan Collins, and Lisa Cook are set to speak. The hawkish remarks from the Fed policymakers might lift the Greenback and weigh on the USD-denominated gold. Gold traders will monitor the consumer sentiment reading from the University of Michigan on Friday. 

in April while the number of job openings remained little changed at 8.5 million on the last business day of March, according to the JOLTS Job Openings report. Furthermore, the US reported Unit Labor Costs in the first quarter of the year rose 4.7%, implying an upward risk to inflaiton, while Nonfarm Productivity in the same quarter advanced a measly 0.3%.

Another indicator of labor sector performance will be the April Nonfarm Payrolls report, which will be out on Friday. The US is expected to have added 243K, while the Unemployment Rate is foreseen steady at 3.8%. The report includes an update on wages, while separately, the US will release the April ISM Services PMI, an indicator of economic health.

USD/INR Cash/Tom/Spot Levels: (in Paisa)

(Updated as on 08^th May 2024, @ 09.00am)

 Cash/Tom:    0.10/0.60                  Cash/Spot: 0.20/1.20

 Tom/Spot:     0.10/0.60                  Spot/Next:  0.40/1.50

Cash Date:   08^th May   2024

Tom Date:     09^th May   2024

Spot Date:    10^th May   2024

Outlook for the day 08^th May 2024

Rupee expected to trade in range of 83.30-83.60

MAJOR WORLD CURRENCIES: as on (07^th May, 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 07^th May, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 07^th May, 2024

Stock Indices

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