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Rupee Outlook and Strategy

• The US dollar index rebounded from its seven month lows and ended the day with minor gains on hawkish comments from two Fed members. Earlier, the dollar index had slid towards the 101.50 mark amid weak US retail sales data and as supplier level inflation cooled significantly. Weak economic data had backed expectations that the Fed will slow the pace of rate hike

• Rupee future maturing on January 27 appreciated by 0.60% to settle at 81.34 on Wednesday amid optimistic domestic market sentiments and weakness in the dollar

• The rupee is expected to appreciate as long as the pair stays under the 82 mark. Further, anticipation of a weaker set of housing and manufacturing data from the US could restrict the recovery in the dollar. Series of weak economic data from US has fuelled expectations that Fed will reduce the magnitude of rate hike and may even pause it, going forward. For US$INR 81.20 is key support. A move below would weaken it towards 81.0, followed by 80.80.

Euro and Pound Outlook

• The Euro rose 0.06% on Wednesday after ECB Governing council Member V de Galhau’s hawkish comments to maintain the rate hike path steady at 50 bps. Later on the Euro gave up most of its advance after the dollar recovered from its seven month low, following hawkish Fed member’s comment

• The Euro is expected dip towards the lower band of the consolidation range 1.74-1.88 as it failed to rally beyond the key psychological mark at 1.09. EURINR (January) is expected to dip towards 87.60 as long as price remains below the 89. Now the focus shifts towards the ECB president Lagarde’s speech, which could bring more clarity in the direction of the pair

• The pound held its gains as the headline inflation numbers remained above the 10.00 mark. The increase in Core CPI numbers to 6.3% against market expectation of a rise in 6.2% has raised the chances of 50 bps rate hike in the coming policy. The higher wage growth, strong job numbers along with sticky inflation numbers could force the BoE towards a higher rate

• The pound is expected to trade with a positive bias as long as it sustains above the 1.2260 mark. Now, 1.2445 holds a key barrier for the pair. A move above it would bring fresh buying interest in the trend and push it towards 1.255. GBPINR (January) is likely to rise towards 100.80, followed by 101 as long as it holds above the key support of 99.80

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