NRI Newsletter - Market News

TODAY: Friday, 24^th  March, 2023

USD/INR:

The Indian rupee opened higher against the US dollar on Thursday, following an anticipated 25 basis point rate hike by the Federal Reserve on Wednesday and hints of a possible pause in future rate hikes amid the recent banking crisis.

The domestic currency opened at its strongest level against the greenback in the week at 82.37/$1 compared to its close at 82.65 on Tuesday, as the forex market in India remained closed on Wednesday.

The US dollar tumbled to its near seven-week lows on Thursday after the Fed softened its rhetoric on tightening monetary policy- signaling that it may be considering an eventual pause in policy tightening to prevent further economic headwinds.

The US dollar index dipped 0.21% to 101.76 levels, its low since Feb 3, 2023. US bond yields fell sharply too.

 MAJOR WORLD CURRENCIES:

USD:

The dollar pared earlier losses on Thursday after the U.S. Federal Reserve sounded close to calling time on interest rate hikes, while the Swiss National Bank and Bank of England pushed ahead with further rate increases.

The Fed raised its benchmark funds rate 25 basis points on Wednesday, but dropped language about "ongoing increases" being needed in favor of "some additional" rises.

The Fed's hike was notable given that financial markets have been roiled by wavering confidence in banks globally following a run on Silicon Valley Bank two weeks ago and the sudden demise of Credit Suisse.

  Markets are betting on just one more quarter-point hike from the Fed, in contrast to Europe where markets see around 50 bps of further tightening.

The gap sent the euro surging to a seven-week high of $1.0930, before moving downward. It was last at $1.08480.

 EUR:

EUR/USD is stalling the previous day's retracement slide from the 1.0930 region, or its highest level since early February, and oscillates in a narrow trading band ahead of the European open this Friday. All eyes remain on the Eurozone and US PMI data.

The US Dollar (USD) is seen struggling to capitalize on the overnight goodish rebound from a seven-week low touched in the aftermath of the Federal Reserve's hints of a pause to interest rate hikes.

It is worth recalling that the US central bank raised interest rates by 25 bps on Wednesday, as was widely anticipated, though sounded cautious on the outlook in the wake of the recent turmoil in the banking sector. In fact, banking stocks have been battered in the last two weeks following the sudden collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - and the emergency sale of the troubled Swiss bank, Credit Suisse to its rival UBS. Furthermore, the Fed lowered its median forecast for real GDP growth projections for 2023 and 2024. This, along with the recent sharp decline in the US Treasury bond yields and a generally positive risk tone, undermines the buck and lends some support to the EUR/USD pair.

The aforementioned factors, to a larger extent, overshadows Thursday's better-than-expected release of the US Initial Jobless Claims, which fell to a three-week low level of 191K and pointed to tight labor market conditions. Market participants now look forward to the release of the flash version of PMI prints from the Eurozone and the US. Apart from this, traders will take cues from the US bond yields and the broader risk sentiment, which should influence the USD price dynamics and provide a fresh impetus to the EUR/USD pair. Nevertheless, spot prices remain on track to register strong weekly gains and prolong the recent rally from the vicinity of the 1.0500 psychological mark, or over a two-month low touched earlier this March.

GBP:

GBP/USD continues to trade marginally lower on the day below 1.2300 early Friday. The data from the UK showed that Retail Sales rose by 1.2% in February, compared to the market expectation of 0.2%, but failed to provide a boost to the Pound Sterling ahead of PMI data.

GBP/USD has gathered bullish momentum and advanced toward 1.2300 early Wednesday, touching its highest level since early February. The pair's near-term technical outlook points to a bullish bias but the US Dollar's reaction to the US Federal Reserve's (Fed) policy announcements should influence the action in the American session.

The UK's Office for National Statistics reported earlier in the day that inflation in the UK, as measured by the Consumer Price Index (CPI), climbed to 10.4% on a yearly basis in February from 10.1% in January. This reading surpassed the market expectation of 9.8% by a considerable margin. The Core CPI, which excludes volatile food and energy prices, rose to 6.2% in the same period from 5.8%.

Following hot inflation figures, the probability of a 25 basis points (bps) Bank of England (BOE) rate hike on Thursday surged above 90% from 50% on Tuesday, reflecting the hawkish tilt in the expectations.

Later in the day, the Fed is forecast to raise its policy rate by 25 bps to the range of 4.75%-5%. This decision is already baked in and it's unlikely to trigger a significant reaction.

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

(Updated as on 24^th March, 2023 @ 09.00am)

 Cash/Tom:     1.00/2.25                  Cash/Spot: 1.25/3.25

 Tom/Spot:      0.25/1.00                  Spot/Next:  0.25/1.00

 Cash Date:  24^th March 2023

 Tom Date:    27^th March 2023

 Spot Date:   28^th March 2023

Outlook for the day 24^th March ,2023:

Rupee expected to trade in range of 82.00 – 82.40

MAJOR WORLD CURRENCIES: as on (23^rd March ,2023)

Gold:

Gold renews its intraday low around $1,987 during the first loss-making day in three amid early Friday morning in Europe. In doing so, the XAU/USD traces downbeat US Treasury bond yields amid a sluggish end of an active week.

Gold price (XAU/USD) renews its intraday low around $1,987 during the first loss-making day in three amid early Friday morning in Europe. In doing so, the XAU/USD traces downbeat US Treasury bond yields amid a sluggish end of an active week.

That said, the dovish concerns surrounding the Federal Reserve’s (Fed) next move, as well as the downbeat yields, challenge the Gold price traders even as banking fears join hopes of upbeat data and market consolidation to weigh on XAU/USD prices of late.

Fed’s heavy lending amid the banking rout flags fears of a ballooning Fed balance sheet, which in turn renews hawkish calls for the US central bank’s next moves and lures the Gold bears near the multi-day high.

However, the mixed US data and the latest Fed statement appear to challenge the policy hawks. Also challenging the US Dollar could be the comments from key market players like DoubleLine’s Gundlach who recently reiterated his dovish bias for the US central banks.

Elsewhere, comments from US Treasury Secretary Janet Yellen and the Chair of the Basel Committee on Banking Supervision, portraying the market’s fears of banking fallouts, also weigh on the market’s mood and challenge the XAU/USD buyers. However, the recent retreat in the market’s consolidation allows the Gold buyers to consolidate recent gains ahead of the key data/events.

While portraying the mood, US 10-year and two-year Treasury bond yields remain depressed at around 3.38% and 3.78% respectively by the press time whereas the S&P 500 Futures struggle to copy Wall Street’s positive moves.

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 23^rd March ,2023

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 23^rd March ,2023

Stock Indices

(As on 23^rd March ,2023)

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