TODAY: Thursday, 16^th May, 2024

USD/INR:

INR likely to open around 83.45

Dollar is weak and US yields lower, after a broadly in-line CPI and weaker retail sales data triggered hopes of rate cuts yet again. Dollar Index is at 104.20, with EUR at 1.0885, GBP at 1.2685 and JPY at 154.10. US 10y is at 4.4%. Equities rose in the US, buoyed by the favourable data which raised the rate cut probability. DOW jumped 0.9%, while S&P 500 shot up 1.2% due to the tech stock bounce. While Indian equities traded weak yesterday, they are expected to open strong following the overnight positivity.

The headline CPI inflation came in at 0.3% MoM and 3.4% YoY, below the previous month’s CPI. While the data is in line with expectations, it helped ratify the hopes that inflation has again resumed its downward trend. Core CPI inflation was also at 0.3%. The monthly retail sales growth came in flat unexpectedly against expectations of 0.4% – suggesting weak demand. Markets have turned hopeful that the weak demand will help bring the inflation down further.

With the CPI data benign, Dollar has lost its support in the short-term and hence its broad-based weakness. INR can take a breather and the pressure to depreciate should subside a bit after this data. Rate cut expectations are firmly back on the table and could keep the Dollar tentative at least until the next data trigger.

MAJOR WORLD CURRENCIES:

The US economy is showing signs of pressure as inflation in April seems to have decelerated. Federal Reserve (Fed) Chair Jerome Powell's cautious stance, coupled with mixed Producer Price Index (PPI) readings, are highlighting concerns over future inflation dynamics, which seem to be weighing on the Greenback.

EUR/USD rose for the third session in a row and approached the 1.0900 hurdle always on the back of further USD-selling.The ECB’s Financial Stability Review will be the sole release on the domestic docket on May 16.

GBP/USD extended further its march north and traded at shouting distance from the 1.2700 hurdle. The BoE’s Financial Stability Report will be out on May 16.

USD/JPY interrupted its multi-day uptrend and receded to multi-session lows in the sub-155.00 zone following increasing weakness in the Dollar and declining yields. The advanced Q1 GDP Growth Rate, final Industrial Production prints and weekly Foreign Bond Investment are expected on May 16.

A robust session in the risk-linked assets propelled AUD/USD to levels just shy of the 0.6700 hurdle ahead of key data in Australia. The release of the labour market report and the speech by RBA’s Hunter are all due on May 16 in Oz.

GBP:

The GBP/USD pair extends its upside near 1.2688 on Thursday during the early Asian session. The uptick of the major pair is supported by the weaker Greenback after the release of softer US CPI inflation data. 

GBP/USD declined toward 1.2500 in the early American session on Tuesday but managed to reverse its direction. Supported by the selling pressure surrounding the US Dollar (USD), the pair climbed above 1.2550 and closed the day in positive territory. Early Wednesday, the pair stays relatively quiet near 1.2600 as investors await key April inflation data from the US.

The USD weakened against its rivals on Tuesday as the market mood improved following the producer inflation data, which showed that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April as forecast. Later in the session, Federal Reserve (Fed) Chairman Jerome Powell noted that the PPI data was "quite mixed." Powell repeated that it was unlikely that the next move would be a rate hike, adding that they were more likely to hold the policy rate where it is.

EUR:

The ongoing negativity surrounding the US Dollar (USD) spurred yet another positive response in EUR/USD, this time lifting it to surpass five-week highs near the 1.0900 barrier on Wednesday.

The intense decline in the Dollar coincided with a generally negative session in US yields across various durations, all exacerbated after US inflation data tracked by the CPI showed another downtick in consumer prices in April.

This scenario continues to anticipate the Federal Reserve (Fed) embarking on its easing cycle in September, in contrast to a potential earlier onset of interest rate cuts by the European Central Bank (ECB), likely in June.

Regarding the latter, the CME Group’s FedWatch Tool indicates a 70% probability of lower interest rates in the US by September.

This idea was reinforced after Federal Reserve Chief Jerome Powell expressed his expectation of US inflation continuing to decrease through 2024, echoing last year's trend. He also indicated that it seemed unlikely for the Fed to implement further interest rate hikes.

Somewhat in contrast to Powell’s views, Minneapolis Federal Reserve Bank President Neel Kashkari reiterated on Wednesday his uncertainty regarding the level of restrictiveness in current monetary policy. He emphasized that borrowing costs "probably need to remain at their current level for a while" as US central bankers assess inflation.

Gold

Gold price gains traction amid the weaker US Dollar on Thursday. The recent Consumer Price Index report showed inflation in the US slowed in April, prompting market players to increase their bets on the US Federal Reserve rate cuts this year. 

Gold price reached a fresh three-week high above $2,380.00 on Wednesday and maintains the bullish stance in the mid-American session.  XAU/USD rallied following the release of the United States (US) Consumer Price Index (CPI) as inflation remained stubbornly high in April, according to the US Bureau of Labor Statistics (BLS).   The CPI rose 3.4% YoY in April from 3.5% in March,  meeting the market’s expectations, while the core annual reading printed at 3.6%, easing from the previous 3.8% but also in line with the market forecast. Finally, the monthly CPI rose 0.3%, slightly below the expected 0.4%.

Overall, the figures were not as terrible as feared, but enough to reaffirm the Federal Reserve's (Fed) hawkish stance. The central bank has maintained the status quo since hiking rates to a range of 5.25% - 5.50% in July 2023 for much longer than initially anticipated. In fact, the Fed’s Summary of Economic Projections (SEP) suggested policymakers were aiming for three potential rate hikes when they met in December. March is gone, and at the time being, investors hope US policymakers will deliver at least one rate cut in November.

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

(Updated as on 16^th May 2024, @ 09.00am)

 Cash/Tom:    0.10/0.70                  Cash/Spot: 0.50/3.10

 Tom/Spot:     0.40/2.40                  Spot/Next:  0.10/0.70

Cash Date:   16^th May   2024

Tom Date:     17^th May   2024

Spot Date:    21^st  May   2024

Outlook for the day 16^th May 2024

Rupee expected to trade in range of 83.40-83.60

MAJOR WORLD CURRENCIES: as on (15^th May, 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 15^th May, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 15^th May, 2024

Stock Indices

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