By Gaurang Somaiya
Rupee traded in a narrow range and volatility remained low following no major cues on the domestic and global front. Earlier in the week, Chinese Yuan was weighed down after the PBoC announced a rate cut of two benchmark lending rates. Chinese yuan witnessed marginal selling pressure during the day after the PBoC announced a rate cut of two benchmark lending rates – its one-year and five-year loan prime rates – by 10 basis points each. The prime rate cuts, the first in 10 months, followed similar easing in other money rates last week but were less aggressive than some had hoped. Dollar rose in the latter half of the week following better-than-expected economic data from the US. Data showed housing data single family housing starts surged 21.7% in May against expectations. On the domestic front, no major cues are lined up but global factors will continue to influence and it will be the move in the dollar index that will trigger volatility in the rupee. We expect the USDINR (Spot) to trade sideways and quote in the range of 81.80 and 82.50.
Pound came under pressure after inflation in the UK came in at 8.7% in May as compared to estimates of 8.4%. Volatility in the pound was high after the Bank of England raised rates by 50bps. Earlier in the week, data showed inflation in the UK rose to 8.7% in May as compared to estimates of 8.3%. Policymakers in the UK are walking on a tightrope as they attempt to tighten monetary policy to quell inflationary pressures. Losses for the currency got extended after preliminary manufacturing and services PMI numbers from the UK came in weaker-than-estimates. This week, from the UK, the final GDP number will be important to watch and that is likely to provide cues to the pound that was weighed down in the last few sessions.
The Japanese Yen continues to remain under pressure as the dollar gained in the latter half of the week. The divergence between the Federal Reserve and the Bank of Japan policy is keeping the safe haven currency weighed down. We expect that momentum in the Yen is likely to remain weak and any further dovish outlook from the BOJ could keep the Yen under pressure.(Gaurang Somaiya is a Forex & Bullion Analyst at Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)