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Rupee Outlook and Strategy

* The US dollar index extended losses on Wednesday and fell to a ninemonth low after Federal Reserve raised interest rate by 25 bps in line with market expectations. The Fed chairman Jerome Powell also spoke of making progress in bringing down inflation pressures. Further, the dollar was pressurised by a sharp drop in US 10 year’s treasury yields and as private businesses in the US created 106,000 jobs in January 2023, well below market forecasts of 178,000. It is the lowest reading since January 2021

* Rupee future maturing on February 24 remained volatile because of the Union Budget but closed flat despite a weaker dollar index and drop in domestic equity markets

* The rupee is likely to appreciate today amid weakness in the dollar and rise in risk appetite in global markets. Further, the rupee may be supported as Government of India in the Budget said it will target a fiscal deficit of 5.9% of GDP for 2023/24 compared to 6.4% for the current fiscal year. US$INR is likely to trade towards the level of 81.60

Euro and Pound Outlook

* The Euro edged higher by almost 1.20% to nine-month’s high on Wednesday amid a sharp drop in the dollar index and optimistic global market sentiments. Further, Euro was supported as the annual inflation rate in the Euro Area fell to an eight-month low of 8.5% in January 2023 from 9.2% in December. Additionally, German manufacturing PMI was revised slightly higher to 47.3 in January 2023 from a preliminary of 47

* We expect the Euro to extend its gains for the day amid a rise in risk appetite in global markets and weakness in US dollar index. Further, investors will closely watch ECB interest rate decision as the central bank is expected to raise the interest rate by 50 bps, which will help to tame the inflation. EURUSD is expected to surpass the hurdle of 1.1040 level to continue its upward trend towards the level of 1.1080. EURINR (February) is likely to rise further till 89.80 levels

* The pound rose more than 0.40% yesterday amid a weaker dollar and optimistic global market sentiments. Further, the pound was supported as the UK manufacturing PMI was revised slightly higher to 47.0 in January 2023, up from a preliminary estimate of 46.7 and above December's 31-month low of 45.3

* The pound is expected to trade with a positive bias for the day amid softer dollar and optimistic global market sentiments. Further, market participants will closely watch BoE’s interest rate decision, which is expected to increase by 50 bps. GBPUSD is likely to break the key resistance level at 1.2412 to continue its upward trend towards the level of 1.2440. GBPINR (February) is expected to continue its upward trend towards the level of 101.40

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