TODAY: Friday, 07^th February, 2025

USD/INR:

The Indian rupee rose in early trading on Friday, tracking the gains in most Asian currencies, while dollar-rupee forward premiums dipped ahead of a closely watched monetary policy announcement by the Reserve Bank of India.

The rupee USDINR was at 87.46 against the U.S. dollar as of 09:20 a.m. IST, stronger by 0.1% on the day.

The dollar index was little changed at 107.7, while Asian currencies were mostly up between 0.1% and 0.4%.

The RBI will announce its policy decision at 10 a.m. IST and is widely expected to cut policy rates by 25 basis points, the first rate reduction in nearly five years.

Expectations of the rate cut, alongside persistent portfolio outflows and elevated dollar bids in the non-deliverable forwards market have hurt the rupee this week, with the currency hitting its lifetime low of 87.5825 on Thursday.

While traders' outlook on reactions to the policy decision varies, most of them expect the central bank to curb undue volatility.

"Generally, the RBI is active on policy days. It (rupee) could be restricted to a very narrow range today," a trader at a large private bank said.

Meanwhile, dollar-rupee forward premiums eased ahead of the policy decision, with the 1-year implied yield (INRANPRM1Y=RR) slightly lower at 2.17%.

MAJOR WORLD CURRENCIES:

USD:

The dollar index held steady around 107.7 on Friday as traders awaited the highly anticipated monthly jobs report, which could influence the outlook for Federal Reserve monetary policy.

Markets are forecasting nonfarm payroll growth of 170,000 for January, a slowdown from the 256,000 jobs added in December, with the unemployment rate expected to remain at 4.1%.

Currently, markets are pricing in two 25 basis point rate cuts by the Fed this year.

Meanwhile, the dollar is set to finish the week lower following a dramatic reversal driven by easing concerns over a global trade war.

GBP/USD:

The Pound Sterling (GBP) fell during Thursday’s North American session, down 0.79% after the Bank of England (BoE) reduced the Bank Rate by 25 basis points. Therefore, the GBP/USD pair tumbled below 1.2400 and hit a daily low of 1.2359. At the time of writing, the pair trades at 1.2405.

As expected, the BoE lowered rates to 4.50%, though surprisingly. Two members voted for a “larger size” rate cut, with Catherine Mann, one of the hawkish members, being one of them. Following the UK’s central bank decision, investors rushed to price 65 basis points (bps) of easing towards the end of 2025.

Additionally, the BoE updated its forecasts. The British economy is expected to grow by 0.75% and inflation to rise from 2.5% to 3.7%. BoE’s Governor Andrew Bailey said he hopes to be able to cut rates further, yet they would take their decisions “meeting by meeting.” He added that although headline inflation edged higher, he sees “continued gradual easing of underlying inflationary pressures.”

Across the pond, US Initial Jobless Claims missed the mark for the week ending February 1. The number of Americans filing for unemployment benefits rose by 219K, up from 208K the previous week, exceeding forecasts of 213K.

Given the backdrop, further GBP/USD downside is seen. The Federal Reserve (Fed) is expected to keep rates on hold while the BoE continues to ease policy. Therefore, the divergence amongst central banks might benefit the Greenback.

The UK economic docket will comprise BoE officials crossing the wires this week. In the US, Nonfarm Payrolls figures for January and Fed speakers could dictate the direction of GBP/USD.

EUR/USD:

EUR/USD corrects to near 1.0360 in Thursday’s North American session. The major currency pair drops as the US Dollar (USD) gains ground after a sharp downside move in the last three trading days. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to near 108.00 from the weekly low of 107.30. 

The recovery in the US Dollar appears to be the result of investors' caution ahead of the January nonfarm Payrolls (NFP) data, which will be released on Friday. The upbeat ADP Employment Change data for January has set a positive tone for the official employment data. ADP reported on Wednesday that the private sector added 183K workers last month, significantly higher than estimates of 150K and the prior release of 176 K.

Investors will pay close attention to Friday’s US employment data as it will influence market speculation for how long the Federal Reserve (Fed) will keep interest rates steady in the current range of 4.25%-4.50%. Last week, Fed Chair Jerome Powell said that the central bank would make monetary policy adjustments only after seeing “real progress in inflation or at least some weakness in the labor market”.

Meanwhile, Fed officials are uncertain about the monetary policy outlook as they struggle to predict the impact of US President Donald Trump’s economic agenda. On Wednesday, Chicago Fed Bank President Austan Goolsbee said, "If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it's coming from tariffs.”

In the Thursday's North American session, the US Department of Labor has reported higher-than-expected Initial Jobless Claims numbers for the week ending Jan 31. Individuals claiming jobless benefits for the first time came in higher at 219K than estimates of 213K and the prior release of 208K.

Gold:

Gold price (XAU/USD) regains positive traction following the previous day's modest slide and remains within striking distance of the all-time peak during the Asian session on Friday. Escalating US-China trade tensions, along with concerns about the potential economic fallout from US President Donald Trump’s aggressive trade policies, continue to underpin demand for the safe-haven bullion. 

Meanwhile, bets that the Federal Reserve (Fed) would keep cutting rates in 2025 keep the US Treasury bond yields depressed near their lowest level since December. This fails to assist the US Dollar (USD) in attracting any meaningful buyers and also lends support to the non-yielding Gold price. Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report for a fresh directional impetus. 

In addition, US jobs data showed that the number of people applying for unemployment benefits rose in the week ending February 1, revealed the US Department of Labor. A Bloomberg report said the report was mainly ignored due to distortions spurred by wildfires in Los Angeles and worse weather conditions in other parts of the US.

Bullion failed to gain traction amid dovish comments by Chicago Fed President Austan Goolsbee. He said the Fed is in good shape for eventual cuts, though he added that uncertainty around Washington policies warrants a “slower approach.”

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

(Updated as on 07^th February, 2025 @ 09.00am)

 Cash/Tom: 0.30/3.30                Cash/Spot: 0.40/4.40

 Tom/Spot:  0.10/1.10                 Spot/Next: 0.10/1.10               

Cash Date:   07.02.2025

Tom Date:     10.02.2025

Spot Date:     11.02.2025

Outlook for the day 07^th February, 2025:   Rupee expected to trade in range of 87.30/87.70.

MAJOR WORLD CURRENCIES: as on (06^th February, 2025)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 06^th February, 2025

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 06^th February, 2025

Stock Indices

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