TODAY: Friday, 13th December, 2024

USD/INR :

The Indian rupee will have to contend with the higher run in the U.S. dollar and yields at the open on Friday, which may push the local currency to a new all-time low.

The one-month non-deliverable forward indicated that the rupee USDINR will open at 84.87-84.88 to the dollar, compared with 84.8575 in the previous session and near the all-time low of 84.88 hit on Thursday.

The dollar index DXY climbed past the 107 handle in the New York session on Thursday to its highest in more than two weeks. The 10-year U.S. Treasury yield rose about six basis points.

Asian currencies declined on Friday, with the offshore Chinese yuan USDCNH dipping past 7.28 to the dollar. Comments from a top trade adviser to U.S. President-elect Donald Trump warning China against currency manipulation likely weighed on the yuan.

A weaker yuan alongside "the sweeping" problems that the rupee is facing, "will likely result in one more busy day" for the Reserve Bank of India (RBI), a currency trader at a bank said.

To support the rupee, India's central bank has been selling dollars in the spot market and conducting buy/sell swaps. The latter ensures that the intervention in the spot market does not have an impact on rupee liquidity and on forex reserves.

The RBI's action in the swap market has distorted the dollar/rupee forward premiums, with near maturities yielding more than far maturities.

MAJOR WORLD CURRENCIES:

USD:

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, rose toward 106.70 after Christine Lagarde, President of the European Central Bank (ECB), confirmed talks of a possible 50 bps interest rate cut. Lagarde’s comments followed the ECB cutting its benchmark rate by 25 bps, the fourth time it has lowered rates this year.

Traders favored the Greenback over the Euro following the ECB rate decision, causing the DXY to surge above 106.50.

In addition, US Producer Price Index (PPI) data showed inflation jetting above expectations, which may slow the Federal Reserve’s (Fed) turn toward loose monetary policy next year.

GBP/USD:

GBP/USD lost its grip on Thursday, easing back below the 1.2700 handle and shedding over half of a percent in the pair’s worst showing in weeks. US Producer Price Index (PPI) inflation rose faster than expected in November, and US weekly Initial Jobless Claims also rose faster than forecasts.

US PPI inflation bucked to 0.4% in November, while October’s print was retroactively adjusted to 0.3% from 0.2% MoM. Markets were expecting a print no higher than 0.2% MoM. Core PPI inflation accelerated to 3.4% on an annualized basis, over and above the expected uptick to 3.2% from the previous 3.1% YoY. US Initial Jobless Claims for the week ended December 6 also rose to a nine-week high of 242K, further bucking investor risk appetite and missing forecasts of 220K.

Investor sentiment froze in its tracks on Thursday post-PPI inflation print, however market expectations for the Fed’s December 18 rate call have hardened around the 25 bps mark. According to the CME’s FedWatch Tool, rate traders are now pricing in over 98% odds of a quarter-point rate cut when the Federal Open Market Committee (FOMC) convenes in December 18.

Friday brings a limited data docket on either side of the Atlantic, leaving Cable traders to focus on Purchasing Managers Index (PMI) figures due early next week for both the US and UK.

EUR/USD:

UR/USD backslid a fifth straight trading day on Thursday, falling another one-fifth of one percent and declining further away from 1.0500. Fiber eased lower for for a fifth consecutive trading day after the European Central Bank (ECB) trimmed interest rates by another 25 bps, with broader market sentiment keeping one foot firmly in the Greenback for the day.

The ECB lowered its main reference rates by another quarter-point, trimming market support for the battered Euro. Friday will be a notably quiet note on the data docket, forcing traders to sit and wait until next week’s Purchasing Managers Index (PMI).

US PPI inflation bucked to 0.4% in November, while October’s print was retroactively adjusted to 0.3% from 0.2% MoM. Markets were expecting a print no higher than 0.2% MoM. Core PPI inflation accelerated to 3.4% on an annualized basis, over and above the expected uptick to 3.2% from the previous 3.1% YoY.

Investor sentiment froze in its tracks on Thursday post-PPI inflation print, however market expectations for the Fed’s December 18 rate call have hardened around the 25 bps mark. According to the CME’s FedWatch Tool, rate traders are now pricing in over 98% odds of a quarter-point rate cut when the Federal Open Market Committee (FOMC) convenes in December 18.

Gold :

Gold price (XAU/USD) recovers some lost ground to around $2,690 during the Asian trading hours on Friday after retreating from a five-week high in the previous session. All eyes will be on the US Federal Reserve (Fed) interest rate decision next week.

Gold buying by central banks, including the People's Bank of China (PBoC) could provide some support on the yellow metal. The Chinese central bank resumed gold purchases in November after a six-month hiatus, increasing its reserves to 72.96 million fine troy ounces. This move comes as Beijing signals a shift to an “appropriately loose” monetary policy, with plans for a more proactive fiscal approach in 2024. Goldman Sachs analysts noted that the People's Bank of China (PBoC) “may even increase Gold demand during periods of local currency weakness to boost confidence in their currency.”  

Additionally, the escalating tensions in the Middle East might boost the safe-haven demand flows, benefiting the precious metal. Reuters reported that an Israeli strike killed at least 30 Palestinians and wounded 50 others who were sheltering in a post office in the central Gaza Strip, bringing the death toll on Thursday in the enclave to 66.

On the other hand, the speculations that US President-elect Donald Trump's tariff policies might prompt inflation might convince the Fed to adopt a more cautious stance on cutting interest rates. This, in turn, could act as a headwind for non-yielding assets like gold. According to CME Group's FedWatch Tool, traders are now pricing in a nearly 96.4% chance that the Fed will reduce its rate by 25 basis points (bps) rate cut at the December meeting.

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

(Updated as on 13th December, 2024 @ 09.00am)

 Cash/Tom: 0.15/2.50                   Cash/Spot: 0.20/3.25

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

Cash Date: 13.12.2024

Tom Date:   16.12.2024

Spot Date:   17.12.2024

Outlook for the day 13th December, 2024:   Rupee expected to trade in range of 84.75-84.90.

MAJOR WORLD CURRENCIES: as on (12th December , 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 12th December, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 12th December , 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