TODAY: Thursday, 24th July, 2024

USD/INR:

NR likely to open around 83.70/75

Even as the Dollar remains fairly firm against most currencies (except JPY), the Rupee continues to be tentative post the budget and Indian equities remain jittery regarding the uncertainty of tax environment. USDJPY is down to 153 handle, as markets seem to come out bets against the Yen ahead of the next week’s BOJ policy.

Dollar Index is at 104.30, with EUR at 1.0840 and GBP at 1.2900. JPY is at 153.15, sharply lower from yesterday. The combination of hawkish expectations about BOJ policy and the threat of intervention is working for JPY. Risk appetite is weak across markets and yesterday saw sharp cut in US equities. NASDAQ crashed 3%+ as tech earnings disappointed – specifically from TESLA and Alphabet. Given that Indian markets are now fragile after the budget, they can now be expected to be more tentative in the coming days. Indian indices were mildly in the red yesterday.

Today’s US GDP followed by tomorrow’s US PCE, with the BOJ and then the Fed meetings next week, the coming few days might be eventful for markets. USDINR is now firmly higher, and the previous range has broken. The 83.60 band could now prove to be a strong support for USDINR. The bias is now towards more depreciation towards 84, unless there is a significant unlikely shift in global sentiment driven by the a weak PCE.

MAJOR WORLD CURRENCIES:

The GBP/USD pair edges lower to 1.2895 during the Asian trading hours on Thursday. The higher possibility that the Bank of England will begin cutting interest rates in August has undermined the Pound Sterling. In the absence of top-tier UK economic data releases, the GBP/USD pair will be influenced by the USD. 

The data from the UK showed that the S&P Global/CIPS Composite PMI improved to 52.7 in July's flash estimate from 52.3 in June, highlighting an ongoing expansion in the private sector's business activity at an accelerating pace. 

Assessing the survey's findings, "policymakers will likely take a cautious approach to loosening policy amid signs of inflationary pressures pivoting away from services towards manufacturing, where Red Sea shipping delays and higher freight prices are adding to costs again," said Chris Williamson Chief Business Economist at S&P Global Market Intelligence. "The renewed hiring trend could also add to pay pressures, sustaining some stickiness of inflation in the coming months.”

Despite the upbeat UK PMI data, the risk-averse market atmosphere doesn't allow GBP/USD to regain its traction. At the time of press, UK's FTSE 100 Index was down nearly 0.5% on the day and US stock index futures were losing between 0.5% and 0.9%.

Later in the day, S&P Global will release July PMI data for the US. Unless either of the Manufacturing or the Services PMI unexpectedly falls below 50, the US Dollar could preserve its strength and continue to cap the pair's upside, given the negative shift seen in risk mood.

EUR/USD:

The US Dollar (USD) charted decent losses on Wednesday, especially vs. the Japanese yen, dragging the USD Index (DXY) to the boundaries of the 104.00 level amidst mixed developments in US yields across the spectrum.

In that context, EUR/USD dropped to fresh lows near 1.0820, an area close to the critical 200-day SMA, although it later managed to stage an acceptable comeback and reach the 1.0850 zone amidst marginal gains in German 10-year bund yields.

Extra weakness in the single currency also followed disheartening prints from advanced Manufacturing and Services PMIs in both Germany and the euro bloc for the month of July, showing business activity in the region appears to have met difficulties to rebound further.

Back to monetary policy, a September interest rate cut by the Federal Reserve (Fed) appears fully anticipated, with investors also expecting another reduction in December. In this context, market participants might shift their focus to the US political scene, especially after current Vice President K. Harris garnered significant support to face Republican candidate D. Trump in the November 5 elections.

In the Eurozone, it is worth recalling that the ECB’s Luis de Guindos hinted at a possible interest rate cut in September.

Meanwhile, the policy divergence between the Fed and the ECB is expected to remain almost unchanged going forward, as both central banks are forecast to cut rates after the summer break. However, the steady view of a soft landing in the US economy seems to contrast with some loss of momentum in the Eurozone's economic recovery, all morphing into potential extra weakness in EUR/USD in the latter part of the year.

Looking ahead, key US GDP figures and US PCE data are expected to influence market sentiment in the second half of the week.

Gold

Gold price continues losing ground for the second straight day and drops to a two-week low. The downfall could be attributed to some technical selling, though it is likely to remain limited. September Fed rate cut bets and the risk-off mood could lend support ahead of the US data.

The bearish pressure around Gold price remains unabated, as markets resort to ‘sell everything mode’ amid intense risk-aversion, fuelled by mounting economic worries in China.

As China's slowdown concerns accentuate, the People’s Bank of China (PBOC), China's central bank, cut the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30% on Thursday.

Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (AgBank), China Construction Bank, Bank of China and Bank of Communications cut deposit rates by 5 to 20 basis points (bps), according to statements on their websites.

These rate cuts by Chinese banks leave markets unimpressed, as they sound more like alarm bells for more economic pain in the offing for China. Slowing Chinese economic growth could heavily impact physical demand for Gold, as China is the world’s top yellow metal consumer.

Meanwhile, amidst a broader market sell-off, the US Dollar and the US Treasury bond yields also follow suit, unable to lend support to Gold price. The Greenback bears the brunt of the relentless USD/JPY sell-off, as the Japanese Yen keeps pushing higher on carry trades unwinding, courtesy of the divergent monetary policy outlook between the US Federal Reserve (Fed) and the Bank of Japan (BoJ).

Attention now turns toward the US Q2 GDP data release in the US session ahead, with a weaker print likely to reinforce expectations of two interest-rate cuts by the Fed this year. Markets are fully pricing in a rate cut in September, according to the CME Group’s FedWatch Tool.

The quarterly PCE inflation readings will also grab the market’s attention ahead of Friday’s monthly release.

The preliminary US annualized GDP is likely to rise to 2.0% in Q2, against a 1.4% growth reported previously. Meanwhile, the US GDP is set to increase by 2.6% QoQ in Q2 vs. 3.1% seen in Q1.

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

(Updated as on 24^th July 2024, @ 09.00am)

 Cash/Tom: 0.05/0.75                   Cash/Spot:0.20/2.50

 Tom/Spot:  0.15/1.75                    Spot/Next: 0.05/0.75

Cash Date:  25.07.2024

Tom Date:   26.07.2024

Spot Date:  29.07.2024

Outlook for the day 24^th July, 2024

Rupee expected to trade in range of 83.58-83.75

MAJOR WORLD CURRENCIES: as on (24^th July, 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 24^th July, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 24^th July, 2024

Stock Indices

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