TODAY: Thursday, 02^nd May, 2024

USD/INR:

Dollar retreated against JPY, seemingly due to the BOJ intervention yesterday. INR is again around the all-time lows, but the pullback in JPY will help the Rupee back into the range. Dollar remains firm against other currencies ahead of the FOMC meeting starting today (outcome tomorrow).

Dollar Index is at 105.80, with EUR at 1.0705, GBP at 1.2550 and JPY at 156.80. Even as USDJPY saw a sharp correction, the Dollar remained strong as concerns that the FOMC will be forced to be hawkish kept the Dollar buzzing. Tomorrow’s FOMC will be watched for the tone of communication and to check whether the FOMC is ready to bite the bullet at least by Nov/Dec meetings. US equities traded moderately in the green with around 0.3-0.4% uptick. Indian equities surged yesterday, on the back of the Friday’s US market performance. 

USDJPY’s retreat could provide some relief to the Rupee for now. But appreciation possibility for the Rupee is minimal given that the Dollar is buoyed by hawkish Fed expectations. After the FOMC, markets have the US jobs report to contend with, and it is likely that the hawkish narrative could be supported by the incoming data in the coming few months. USDINR is set to be biased upwards, though capped by the RBI.

MAJOR WORLD CURRENCIES:

USD:

GBP:

GBP/USD is consolidating the rebound above 1.2500 in European trading on Thursday. The pair struggles, despite the US Dollar weakness on dovish Fed signals. A mixed market mood caps the GBP/USD upside ahead of mid-tier US data. 

GBP/USD declined sharply on Tuesday and erased all of Monday's gains. The pair fluctuates in a tight range below 1.2500 as trading action remains subdued, with most major European markets staying closed in observance of the Labor Day holiday.

The renewed US Dollar (USD) strength caused GBP/USD to turn south in the American session on Tuesday. The Employment Cost Index rose 1.2% in the first quarter. This reading followed the 0.9% increase recorded in the previous quarter and surpassed the market expectation of 1%, reviving fears over strengthening wage inflation. 

Early Wednesday, US stock index futures trade deep in negative territory, supporting the USD and not allowing GBP/USD to gather recovery momentum.

The US economic docket will feature ADP Employment Change and the ISM Manufacturing PMI for April. The market reaction to these data is likely to remain short-lived, with investors refraining from taking large positions ahead of the Federal Reserve's (Fed) monetary policy announcements. Nevertheless, disappointing data could make it difficult for the USD to build on Tuesday's rally.

The Fed is expected to maintain the policy rate at 5.25%-5.5% after April 30 - May 1 policy meeting. Investors will look for changes in the statement language and scrutinize Chairman Jerome Powell's comments for fresh insights into the possible timing of the policy pivot.

Markets are currently pricing a 94% probability that the Fed will leave the policy rate unchanged again in June. The probability of a rate cut in September stays slightly below 50%, according to CME FedWatch Tool. In case Powell adopts a concerning tone regarding the inflation outlook and causes markets to lean toward a rate cut toward the end of the year, the USD could continue to outperform its rivals and weigh on GBP/USD. On the other hand, the pair could stage a decisive rebound if Powell leaves the door open to a rate reduction in September.

EUR:

EUR/USD has erased gains to trade flat near 1.0700 in the European session on Thursday. The pair comes under pressure even as the US Dollar struggles, in the aftermath of the Fed policy announcements and ahead of more US employment data. 

EUR/USD gathered bullish momentum in the late American session on Wednesday and closed the day in positive territory. The pair holds steady above 1.0700 in the European session on Thursday, while the technical outlook points to a bullish tilt.

The Federal Reserve (Fed) left the interest rate unchanged at 5.25%-5.5% following the April 30 - May 1 policy meeting, as widely expected. In its policy statement, the Fed announced they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1. 

When asked about the possibility of policy tightening in the face of persistent inflation, Fed Chairman Jerome Powell said that it was unlikely that the next interest rate move would be a hike. Powell refrained from providing any clues regarding the timing of the policy pivot but said that it was likely that it will take longer than previously anticipated to gain the greater confidence in inflation moving toward the 2% target to lower the policy rate.

The US Dollar (USD) suffered large losses as the Fed event turned out to be not as hawkish as feared, with the USD Index falling over 0.6% on the day. Early Thursday, the USD Index holds steady above 105.50 and limits EUR/USD's upside.

Later in the day, the US Department of Labor will release the weekly Initial Jobless Claims data. The US economic docket will also feature the Unit Labor Costs data for the first quarter, which is expected to rise 3.2% following the 0.4% increase recorded in the previous quarter. A stronger-than-forecast print could help the USD erase some of its post-Fed losses, while a soft print could further weigh on the currency. Nevertheless, the market reaction could remain short-lived, with investors awaiting Friday's Nonfarm Payrolls data.

Gold

The Gold price is trading in the $2,310s on Thursday after retracing about three-tenths of a percent on reduced safe-haven demand. Market sentiment is overall positive as Asian stocks on balance closed higher and Oil prices hover at seven-week lows. 

Gold price surged over $30 an ounce after the US Federal Reserve (Fed) adopted an overall easing bias at its May policy meeting on Wednesday. 

Gold bulls bid up the price after the Fed decided to leave interest rates unchanged and to slow the pace of reduction of its US Treasury holdings, a mildly dovish move as it unwinds quantitative tightening. 

Yet the Fed also added a hawkish phrase to its statement to reflect the continued stubbornness of US inflation, saying that, “in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

Concerns, however, that the Fed might actually consider raising interest rates – something that would be detrimental to non-yielding Gold – were allayed after the Federal Reserve Chairman Jerome Powell described such a move as “unlikely”. 

In his prepared remarks, Powell dropped any reference to reducing interest rates this year, and sidestepped questions about whether the Fed would still be cutting rates in 2024, in the Q&A. Yet, although the overall take-away was that rates were not coming down any time soon, additional rate-hikes were not on the table either. 

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

(Updated as on 02^nd May 2024, @ 09.00am)

 Cash/Tom:    0.10/0.75                  Cash/Spot: 0.35/2.25

 Tom/Spot:     0.25/1.50                  Spot/Next:  0.10/0.75

Cash Date:   02^nd May   2024

Tom Date:     03^rd May   2024

Spot Date:    06^th May   2024

Outlook for the day 02^nd May, 2024

Rupee expected to trade in range of 83.30-83.60

MAJOR WORLD CURRENCIES: as on (01^st May, 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 01^st May, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 01^st May, 2024

Stock Indices

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