By Dilip Parmar
In the week gone, the Indian rupee recovered after registering four weeks of fall, as high-frequency data pointed to better growth prospectus. The foreign fund inflows, lower crude oil prices and the central bank’s intervention supported the local unit to outpace the regional currencies. Spot USDINR fell one-tenth of a percentage to close at 82.75 after broadly consolidating between 82.60 to 82.86 throughout the week.
The dollar strengthened for a fourth week as the Treasury 2-year yield recorded its highest close in almost 16 years. US economic data and Fed commentary is keeping the dollar bid. At the same time, geopolitics and reports that China is preparing to increase its support for Russia are also adding strength to the greenback.
The Fed’s favoured measure of inflation accelerated in January with markets now fully pricing 25bp moves in March, May and June. The inflation rose 0.6% month-on-month versus expectations of a 0.4% print and is also above the 0.4% increase reported by the core CPI report. There were upside revisions too, which means the year-on-year rate has ticked up to 4.7% from 4.6%, above the 4.3% rate expected. The market has yet to discount a potential 50bp move at the March Federal Open Market Committee meeting.
The Federal Reserve may raise interest rates as high as 6%, the European Central Bank to 4%, and the Bank of England to possibly 5% should the global economy continue to be resilient and inflation prevails.
The consolidation is this week’s bias, after the broad dollar spurt above end-2022 levels and US 2-year rates made fresh 16-year highs. The “higher for longer” narrative makes sense to hold a bullish bet for the dollar. The dollar index could trade between 106.50, the 200 days simple moving average, to 103.5, the 50 days simple moving average.
(By Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are author’s own.)