Currency markets reflect the waning Dollar surge - Emkay Wealth Management
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Weak economic data will soften USD further
The trajectory of INR and the revival of inflows from overseas investors will be intertwined
Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services have released a note on the dollar index, outlook, and the reason that may affect the course in the near to mid-term for DXY.
Currency markets reflect the waning Dollar surge
The currency markets reflect the continued weakness of the US Dollar. The fall in the US Dollar was induced by two factors. The first factor is the high levels that the Dollar had reached against the other major currencies. With Euro and the Japanese Yen, the Dollar touched historically high levels. It was expected that at those levels the movement would get resisted. This was felt more in Euro rather than in any other currency. The movement in the Dollar Index is in line with the US dollar. The recent highs and lows for the Dollar index have been 113.80 and 104.20 in the last two months. The 52-week high and low for the index were 114.78 and 94.63.
The surge in the Dollar Index was occasioned mainly by the rise in the US Dollar, interest rates, and the tight money policy followed by the US Fed. The expectation is that the Fed may tighten again, but the pace of hikes may moderate. These indications of a likely moderation in the stance and the tight money policy followed by other central banks, especially the ECB and BOE.
Weak economic data will soften USD further
The trend of the weak US Dollar will largely depend on the economic data points that will be released in the coming months. Any indication of a sluggish economy will further weaken the US dollar. A weak economy will also restrict the rate hike by the US Fed, which may also lead to some liquidity measures.
INR trajectory and forex inflows intertwined
India is a net importer of crude oil. The imports of oil weaken the currency whereas the remittance from NRIs, and exports are a key source of forex. The trajectory of the INR and the revival of inflows from overseas investors will be intertwined.
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