TODAY: Wednesday, 3rd July, 2024

USD/INR:

Dollar is slightly weaker against EUR, but has surged higher against JPY, supported by the firm US long term yields. INR gave up some of the previous day’s gains, tracking JPY, higher crude prices and rising US yields. EUR rose after the results of the first round of the French elections came in mildly better in that the Right wing party garnered lesser majority than what the initial polls suggested.

Dollar Index is at 105.90, with EUR at 1.0735, GBP at 1.2635 and JPY at 161.60. The US 10y yield has risen to 4.45%. JPY is now primed for intervention, but markets continue to take USDJPY higher in line with rate differentials. Dollar, on the other hand, remains neutral in its bias as US inflation numbers remain subdued and US rate cut hopes remain very much alive. US equities closed in the green yesterday, and the DOW ended 0.13% higher while S&P 500 rose 0.25% and the tech index jumped 0.8%. Indian equities have been buoyant for the past few days now, post the elections, but not ready to take the next leap at least until the budget.

INR could keep fluctuating within the current range but will be influenced by the JPY weakness. Of late, long-term US yields have been seeing upward pressure, and have not been too reactive to the narrative about the rate cut cycle.

MAJOR WORLD CURRENCIES:

EUR/USD bounces back strongly from the intraday low near the round-level support of 1.0700 in Tuesday's American session. The major currency pair recovers after discussions between ECB President Christine Lagarde and Federal Reserve (Fed) Chair Jerome Powell at the ECB Forum on Central Banking in Sintra, Portugal. In conversation, ECB Lagarde acknowledged that inflation in the Eurozone economy is moving in the right direction and the central bank is very advanced in the disinflation path. She added, "We don't need to have services inflation at 2%."

Earlier, the Euro remained under pressure due to an expected decline in the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for June. Annual HICP decelerated to 2.5%, as expected, year-on-year from May’s reading of 2.6%. In the same period, the core HICP, which excludes volatile components like food, energy, alcohol, and tobacco, grew steadily by 2.9%. Investors expected the underlying inflation to have declined to 2.8%. Core inflation measure rose at a steady pace due to sticky service inflation. Price pressures in the service sector rose in line with the pace of 4.1% as registered in May. Current inflation readings are unlikely to provide cues about where price pressures are heading.

GBP/USD:

The negative shift seen in risk sentiment helps the US Dollar (USD) find demand on Tuesday and doesn't allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%.

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.

Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday's Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.

Gold

Gold price slid during the North American session as market participants digested Federal Reserve (Fed) Chair Jerome Powell’s comments at a European Central Bank (ECB) forum in Portugal. Powell turned slightly dovish, yet US Treasury yields remained firm. The Greenback fluctuated but remained within familiar levels. Therefore, the XAU/USD trades at $2,324, down 0.28%.

Powell commented that the disinflation process has resumed yet stated that he’d like to see further progress before cutting interest rates. 

US jobs data revealed that job vacancies surprisingly rose above estimates, displaying the robustness of the labor market amid high interest rates of 5.25%-5.50% set by the Fed.

Further data is expected on Wednesday, led by the release of the Federal Open Market Committee's (FOMC) last Meeting Minutes, alongside Services PMIs from S&P Global and the Institute for Supply Management (ISM).

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

(Updated as on 03^rd July 2024, @ 09.00am)

 Cash/Tom:  0.10/1.60                   Cash/Spot:0.10/1.60

 Tom/Spot:  -/-                               Spot/Next: 0.15/2.40

Cash Date:  03.07.2024

Tom Date:   04.07.2024

Spot Date:  05.07.2024

Outlook for the day 03^rd July, 2024

Rupee expected to trade in range of 83.42-83.62

MAJOR WORLD CURRENCIES: as on (02^nd July , 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 02^nd July , 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 02^nd July , 2024

Stock Indices

The views contained herein are those of individuals and not necessarily those of the Bank.  This is for information purpose only and no recommendations are intended.  While due care has been taken in preparation of this communication, IOB cannot be held responsible for any consequences of any decisions based on this information. Comments/Suggestions may be freely emailed to feddeal@iobnet.co.in