By Gaurang Somaiya
Rupee continued to trade in a narrow range and volatility remained low even as a number of events unfolded on the domestic as well as on the global front. On the domestic front, India trade balance number was released and data showed the trade deficit narrowed $20.13 billion in June as compared to $22.12 billion in the previous month that was supportive of the rupee. Momentum for the currency was lacking even after a mixed set of economic data impacted the dollar. Data showed GDP grew at 6.3% in Q2 as compared to 4.5% in the previous quarter.
Global Currencies
The dollar recovered from its recent lows after falling below the 100 mark in the previous week. But this week, market participants will be importantly keeping an eye on the FOMC policy statement. Expectation is that the central bank will be raising rates by 25bps after taking a pause at its last meeting. Latest data of inflation suggest that the price rise has been lower and that is capping gains for the greenback.
The rate hike in July could be termed as a “hawkish pause”. Some of the Fed members also expect that the rate hike from here on could be limited following risk of more bank failures and also on back of global economic uncertainty. This week, apart from the FOMC policy statement from the US, market participants will be keeping an eye on the preliminary manufacturing and services PMI, trade balance, advance GDP and core PCE index number. We expect that weaker-than-expected economic data could limit gains for the dollar.
Euro and pound witnessed quite a bit of choppiness especially the pound that plunged after gaining for two successive weeks. The pound plunged against the US dollar after inflation in the UK came in lower in June as compared to the previous month. Data showed inflation grew at a slower pace in June at 7.9% as compared to 8.7% in the previous month. The UK has been struggling with higher inflation and the Bank of England has raised rates similar to what the Fed did.
This week, from the EZ and the UK, market participants will be keeping an eye on the preliminary manufacturing and services PMI number. Focus will also be on the ECB policy statement; expectation is that the central bank could raise rates by 25bps as inflation is far from the central bank’s target of 2%. Communication for the next meeting will be importantly watched as that will guide the move for the euro in the next couple of weeks. We expect weakness in the pound to extend this week but the Euro, on the other hand, could trade sideways.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)