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USDINR

Outlook US$INR

The dollar continued its rally hitting a 16-month high in November mainly on the back of robust economic data from the US and as the US Federal Reserve in its November policy meeting decided to begin reducing the monthly pace of its net asset purchases by $15 billion each month

Further, US CPI data showed inflation surged to the highest rate since 1990 fuelling expectations of a rate hike. Additionally, US Federal Reserve Chairman Powell’s nomination for a second term signalled continuity in policy. FOMC meeting minutes showed that some officials are prepared to accelerate the pace of ending the bond buying programme and raise rates sooner than anticipated if inflation does not moderate

The dollar may continue to gain strength on expectations of improved economic data from the US and expectations of early rate hike. Further, investors will remain vigilant ahead of the US Federal Reserve’s monetary policy meeting and FOMC economic projections. Furthermore, US Fed Chair Powell in his testimony said it would be appropriate for the central bank to consider accelerating its tapering programme

Rupee

The rupee at the start of the month appreciated amid softening of crude oil prices and IPO related inflows. Furthermore, improved manufacturing PMI data from the country supported the rupee. Additionally, India CPI data showed inflation rose marginally in October but remained under RBI’s comfort zone for a fourth consecutive month. India inflation rose to 4.48% in October 2021 from 4.35% in September 2021

However, in the second half the rupee pared most of its gains on the back of a strong dollar, persistent FII outflows and risk aversion in the domestic markets. Market sentiments were hurt on concerns that a series of restrictions to slow down the spread of the new variant will hurt the global economic recovery

The rupee is likely to continue its depreciation on strong dollar and pessimistic global market sentiments. Further, market participants will remain vigilant ahead of the outcome of major central banks’ monetary policy, across the globe. Most central banks are likely to adopt a tightening policy to tackle elevated inflation. The Reserve Bank of India is likely to keep interest rates unchanged. More focus will be on statements to get cues on future monetary stance. Additionally, investors will focus on US FOMC economic projections to get hints on a rate hike. In the previous projection, out of 18 Fed officials, nine were ready to raise interest rates next year. Even markets will keep a close eye on Opec+ meeting where the organisation and its allies are likely to keep supply tight

Further, market participants will take cues from macroeconomic data. The rupee may weaken further till 76.00 as long as it sustains above 74.50

Rupee likely to depreciate further till 76.0

Rationale: The rupee is likely to continue its depreciation on a strong dollar and pessimistic global market sentiments. Further, market participants are expected to remain vigilant ahead of the outcome of major central bank’s monetary policy, across the globe. Most central banks are likely to adopt a tightening policy to tackle elevated inflation. The Reserve Bank of India is likely to keep interest rates unchanged. More focus will be on statements to get cues on future monetary stance. Additionally, investors will focus on US FOMC economic projections to get hints on rate hike. In the previous projection, out of 18 Fed officials, nine were ready to raise interest rates next year. The rupee may weaken further till 76.00 as long as its sustains above 74.50.

EURINR

Outlook Euro

The Euro continued to fall mainly on the back of a strong dollar and weak economic data from the euro area. Further, investors were worried that a resurgence of Covid-19 cases will have a negative impact on an economic recovery. Additionally, dovish statements from ECB officials and divergence in monetary policy added downside pressure. Although eurozone inflation is now more than twice the ECB’s 2% target, it is unlikely to trigger monetary tightening as most policymakers are of the view that it is transitory

The Euro is forecast to continue its negative bias on a strong dollar, expectations of disappointing economic data and divergence in monetary policy. Further, investors will remain vigilant ahead of ECB’s monetary policy meeting. ECB is likely to continue its easy money policy as growth in the region lags and policymakers are of the view that the recent surge in inflation is transitory. Furthermore, concerns on the onset of new variant when EU countries are already tightening rules to try to curb the spread of Coronavirus will hurt the single currency. EURINR

EURINR likely to trade in range of 84.00-86.50

Rationale: Euro is forecast to continue its negative bias on a strong dollar, expectation of disappointing economic data and divergence in monetary policy. Further, investors will remain vigilant ahead of ECB’s monetary policy meeting. The ECB is likely to continue its easy money policy as growth in the region lags and policymakers are of the view that a recent surge in inflation is transitory. Furthermore, concerns over the onset of a new variant when EU countries are already tightening rules to try to curb the spread of Coronavirus will hurt the single currency. EURINR is likely to trade in a range of 84.00-86.50 with a negative bias.

GBPINR

Outlook GBPINR

The pound depreciated mainly on the back of a strong dollar, concerns over rising Covid-19 cases in the country and as Bank of England left its benchmark interest rates unchanged. Out of nine members seven voted to keep rates at their all-time low. Further, the pound slipped on worries over post-Brexit wrangling between the EU and UK. However, further downside was cushioned as higher inflation and improved job data boosted expectations of a rate hike in December. CPI data showed inflation in the UK hit a 10-year high and jobs data showed that employers hired more people in October after a furlough scheme ended

The pound is likely to trade with a positive bias on expectations of improved economic data from Britain. Further, the market expects BoE to increase rates to tackle high inflation. CPI data is likely to show that inflation remained elevated and above central bank’s target of 2%. Iinvestors will remain cautious ahead of Bank of England’s monetary policy meeting. Any hawkish stance from BoE will be supportive for the sterling. However, sharp upside may be capped on a strong dollar and worries over a new variant of Coronavirus

Buy GBPINR December Futures around 99.95-100.00 for target of 101.50 with stop loss at 99.0

Rationale: The pound is likely to trade with a positive bias on expectation of improved economic data from Britain. Further, market expects BoE to increase rates to address stubbornly high inflation. CPI data is likely to show that inflation remained elevated and above central bank’s target of 2%. Investors will remain cautious ahead of the Bank of England’s monetary policy meeting. Any hawkish stance from BoE will be supportive for the currency.

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