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Rupee Outlook and Strategy

* The US dollar regained its strength after data showed the annual inflation rate in the US slowed slightly to 6.4% in January 2023 but was above market forecasts of 6.2%. Higher-than-expected inflation data and a strong labour market raised the prospects of Fed keeping rates elevated for longer period. Further, a rise in US 10 year’s treasury yields supported the dollar

* The rupee future maturing on February 24 depreciated by 0.08% despite weakness in the dollar and uptick in domestic equity markets

* The rupee is expected to depreciate today on a strong dollar and weak global market sentiments. Dollar is gaining traction on expectations of two more interest rate hike of 25 bps and rates to remain higher for longer period. Further, India's trade deficit is likely to widen. Moreover, investors will closely watch retail sales and industrial production data from the US for further cues. The US$INR is likely to continue its upward trend towards the level of 83.00 for the day

Euro and Pound Outlook

* The Euro edged higher on Tuesday amid a sharp rise in German 10 years bond yields. Meanwhile, sharp upside was capped as the Euro Area economy expanded 1.9% YoY in the last quarter of 2022, the least since contractions in 2021 and matching the initial estimate

* We expect the Euro to trade with a positive bias for the day amid a rise in German government bond yields. Meanwhile, market participants will closely watch key economic data from the euro area and ECB President Lagarde’s speech for more signs on ECB rate hike path. EURINR (February) is likely to continue its upward trade towards the level of 89.50

* The pound appreciated almost 0.30% yesterday after touching 1.2270 level amid a sharp rise in UK 10 years bond yields. Further, the pound was supported as the number of people claiming unemployment benefits in the UK fell by 12900 in January 2023, following a 3200 fall in December

* The pound is expected to trade with a positive bias for the day in anticipation that BoE will continue to raise rates as British wages rose quicker than expected in the last three months. Meanwhile, traders will closely watch inflation data from Britain, which is likely to ease further to 10.3% in January but will be still over five times the bank’s 2% target. GBPUSD is likely to break the key resistance level of 1.2230 to continue its upward trend towards the level of 1.2290. GBPINR (February) is expected to rise towards the level of 101.40

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