TODAY:Tuesday,06th June, 2023

USD/INR

Dollar pared some gains yesterday, after the ISM services data came in lower than expected, and indicated that the US economy is running out of steam. Dollar Index is at 103.95, with EUR at 1.0715, GBP at 1.2435, and JPY at 139.65. US equities were lower after the positive day the previous day. DOW traded down 0.6%. Nifty ended 0.4% higher.

The next event is the US CPI, followed by the FOMC. There is still uncertainty about the rate trajectory in the US, and markets continue to hope for dovish stance from the FOMC soon. But the Fed speakers,  while indicating a pause the coming meeting, remain sceptical about cutting rates anytime soon. Dollar is firm, as the rate cut expectations are being tempered down. As for the Rupee, USDINR is set to meander along in the current range for a few more days, until the CPI/FOMC events next week.

MAJOR WORLD CURRENCIES:

USD:

The dollar languished well below last week's 2-1/2-month highs on Tuesday after unexpectedly soft U.S. services data firmed up expectations for a rate pause at the Federal Reserve's meeting next week but clouded the policy outlook for the months ahead.

The Aussie hovered not far from last week's high ahead of the Reserve Bank of Australia's policy decision later in the day, with analysts and investors split over whether the central bank will hike or hold.

Leading cryptocurrency bitcoin sagged toward the psychological $25,000 mark after U.S. regulators sued Binance, the world's biggest cryptocurrency exchange.

Global markets have been keenly focused on what the Fed might do at next week's meeting and thereafter, with data and comments from central bank officials causing some volatility in the dollar.

The U.S. dollar index - which measures the currency against six major peers - was flat at 104.00, after a shaky few days that saw it rally to a 2 1/2-month peak at 104.70 on the final day of May, only to get knocked back by suggestions by Fed officials that they would skip a rate hike in June.

However, hot employment numbers on Friday saw bets for a July hike ramp up, while the overnight weak services sector outcome has yet again clouded the outlook for rates.

EUR:

During the American session, the EUR/USD rebounded from 1.0675, boosted by the broad-based weakness of the US dollar following the release of US economic data. Federal Reserve rate expectations continue to be a key driver ahead of the June 13-14 meeting. 

The Euro performed mixed on Monday after a slew of economic reports and European Central Bank President Christine Lagarde's testimony at the European Parliament. The common currency fell versus the Swiss franc but rose against the pound. Data from the Eurozone came in below expectations, with the Producer Price Index for April revised from an annual rate of 0.8% to 1% and the S&P Global/CIPS Services PMI revised down from 55.9 to 55.1. The Sentix Investor Confidence in June dropped from -13.1 to -17. On Tuesday, Eurozone data will include April Retail Sales and German Factory Orders.

European Central Bank President Christine Lagarde stated at a hearing before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels that price pressures remain strong in the Euro area, suggesting that more rate hikes are likely. Across the Atlantic, no Federal Reserve officials will speak amid the blackout period ahead of the June FOMC meeting.

The US ISM Services PMI May report showed numbers below expectations and weighed on the US Dollar. The main index fell from 51.9 to 50.3, the Employment index dropped below 50, and the Prices Paid index slid from 59.6 to 56.2. After the report, the US Dollar pulled back, trimming its post-NFP report gains. Monday's numbers offered evidence for the doves, and market participants see the Fed keeping rates steady at the next FOMC meeting. US data boosted Treasury bonds and weighed on Wall Street, with US yields dropping and reversing part of Friday's upward move. The US 10-year yield settled around 3.69%. No relevant US data is due in the US until Thursday with Jobless Claims. 

GBP:

GBP/USD has extended its decline to test 1.2400 in the European morning on Monday. Sellers could move to the sidelines and allow the pair to stage a recovery in the near term if that level proves to be strong support.

Renewed US Dollar (USD) strength ahead of the weekend caused GBP/USD to erase a large portion of its weekly gains. After the US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) rose 339,000 in May, compared to the market expectation of 190,000, the US Dollar Index (DXY) gained nearly 0.5%.

Early Monday, the DXY clings to small daily gains above 104.00 supported by rising US Treasury bond yields. Nevertheless, the CME Group FedWatch Tool's probability of a 25 basis points (bps) Federal Reserve (Fed) rate hike stays below 30%, highlighting that the upbeat NFP reading had little to no impact on the market pricing of the next Fed rate decision.

On the other hand, markets are fully pricing in one more 25 (bps) Bank of England rate increase in June to 4.75% and see a terminal rate close to 5.5%. Hence, the diverging policy outlooks of these two major central banks could help GBP/USD limit its losses in the near term.

In the second half of the day, the ISM Services PMI report for May will be featured in the US economic docket. In case the headline PMI stays comfortably above 50 and the Prices Paid Index of the survey rises unexpectedly, hawkish Fed bets could provide an additional boost to the USD and weigh on the pair. On the flip side, a disappointing headline PMI below 50 and a softer inflation component should have the opposite effect on the pair.

Meanwhile, the UK's FTSE 100 Index is up more than 0.5% in the early European session while US stock index futures trade mixed. A continuation of the risk rally witnessed in Wall Street on Friday should make it difficult for the USD to find demand and vice versa.

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

(Updated as on 06th June, 2023 @ 09.00am)

 Cash/Tom:     0.10/0.90                  Cash/Spot: 0.20/1.80

 Tom/Spot:      0.10/0.90                  Spot/Next:  0.10/0.90

 Cash Date:  06th June  2023

 Tom Date:    07th June  2023

 Spot Date:   08th June  2023

Outlook for the day 06th June, 2023

Rupee expected to trade in range of 82.40 -82.80.

MAJOR WORLD CURRENCIES: as on (05th May, 2023)

GOLD:

The US Dollar has entered a downside consolidation phase, alongside the US Treasury yields, despite a mixed market mood and fresh US-China headlines. A broadly weaker US Dollar is allowing Gold bulls to gather pace for the next push higher. Asian equities are trading mixed amid a pause in the US stocks rally, as the latest downbeat economic data releases from the United States dent risk sentiment.

Gold price witnessed good two-way business on Monday, initially losing ground to test the key support near #1,940, only to find strong demand at the latter to recapture the $1,960 round figure. Earlier in the day, the US Dollar held on to the recovery gains, led by a solid US Nonfarm Payrolls report. The NFP report showed that the US economy added 339K jobs in May vs. 190K expected and the upwardly revised previous reading of 294K. The wage inflation component in the jobs report softened to 4.3% while the Unemployment Rate in the US ticked higher to 3.7% in the reported period, compared with expectations of 3.5%.

Later in American trading, the US Dollar failed to sustain the previous rebound and succumbed to the bearish pressure after a slew of economic data from the United States fell short of expectations and justified increased bets on a US Federal Reserve (Fed) rate hike pause next week.

The Institute for Supply Management (ISM) said on Monday its services PMI fell sharply to 50.3 last month from 51.9 in April and against expectations of 51.5. All its sub-indices, including the Price Paid component, also disappointed markets. US Factory Orders increased 0.4% after a 0.6% gain in March but missed the 0.5% estimates. The US S&P Global Composite PMI for May was also revised lower to 54.3, adding to worries over the health of the US economy. The CMEGroup’s FedWatch Tool shows that the probability of a Fed pause in June is holding up at around 76%, thus far.

 Looking ahead, risk sentiment is likely to be the primary driver for the US Dollar trades, in the absence of any top-tier US economic statistics. Note that the Federal Reserve policymakers are adhering to the ‘blackout period’ ahead of the June 13-14 policy meeting. Therefore, Gold price is likely to remain at the mercy of the US Treasury bond yields and the US Dollar, as markets reprice Fed expectations.

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 05th June, 2023

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 05th June, 2023

Stock Indices

(As on 05th May, 2023)

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