Rupee remains under pressure; USDINR expected to trade sideways in 82.20-82.80 range

Rupee in the last couple of sessions of the previous week came under pressure; witnessed sharp selling and fell to the lowest level in six weeks. Triggers for the rupee came from global factors, primarily the FOMC meeting minutes and better-than-expected economic data from the US. The Fed governor and its officials suggested that at the meeting minutes suggested that while a slower approach might be necessary, policy tightening is not off the table. The dollar rose against its major crosses after the release of the meeting minutes. At the same time, private jobs data also came in on the higher side. Private payrolls rose by 497,000 jobs last month, up from a downwardly revised level of 267,000 in May.

 On the domestic front, market participants will be keeping an eye on the inflation and industrial production number; a lower inflation and a higher IIP number is likely to support the rupee and curb the losses posted in the last few sessions. We expect the USDINR(Spot) to trade sideways and quote in the range of 82.20 and 82.80.

Dollar rose sharply against its major crosses, the FOMC meeting minutes mentioned that officials and the Fed Chairman reinforced the prevailing view that inflation still had some distance to cover before reaching the target of 2%. Probability of further rate hike expectation started to build in after robust private payrolls data. This started to increase expectations that the non-farm payrolls data could show the economy adding further jobs in June. But, non-farm payrolls showed the US economy added  209,000 jobs last month, the smallest gain since December 2020. The U.S. economy added the fewest jobs in the last couple of years in June, but persistent  wage growth pointed to tight labor market conditions that most certainly built expectations that the Federal Reserve will raise interest rates at the July meeting. 

This week, US CPI will be important to watch; expectation is that the number could remain subdued and that could keep volatility in check for the greenback. Broadly, we expect the dollar to trade with a positive bias following better-than-expected economic numbers from the US and on increased expectation that the Fed will be raising rates at its July meeting.

Major crosses the Euro and Pound gained as inflation in both these economies continued to remain elevated. Pound has outperformed in comparison to both these currencies as there is expectation that the Bank of England could continue to raise rates further. Market participants are pricing in another 150 bps of tightening by the middle of next year as inflation remains sticky. This week, from the Eurozone, German economic sentiment number and from the UK, focus will be on the employment, GDP and industrial production number. Better-than-expected data could extend gains for the pound.

(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing)