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Rupee Outlook and Strategy

• The US dollar index rallied more than 1.25% on Tuesday. The hawkish comments from Fed chair Jerome Powell sent the dollar to its eight week high as he said the ultimate level of interest rate is likely to be higher than anticipated earlier. The robust economic numbers, particularly the tight labour market and sticky inflation numbers increased the likelihood that the Fed will take more aggressive steps to cool down inflation back to the target range of 2%

• The rupee future maturing on March 28 closed with a marginal gain of 0.03% on Monday amid a rise in risk appetite in domestic markets

• The rupee is expected to depreciate amid risk aversion in global markets and rally in the dollar index. As per the CME Fedwatch poll, the probability of a 50 basis point hike in the federal funds target has increased to 70%. US$INR is hovering near the key 100 day EMA support at 81.80. Hence, as long as it holds above 81.80 then it is expected to rebound towards 82.20-82.25 zone

Euro and Pound Outlook

* The Euro fell more than 1% on Tuesday to its one week low on the back of a strong dollar and weaker risk sentiments. The Euro declined despite better-than-expected German January factory orders, which rose 1.0% against expectation of -0.7%

* The Euro is expected to trade with a negative bias amid expectation of moderation of inflation in the next 12 months from 5% to 4.9%. Further, a decline in median expectation of inflation three years ahead to 2.5% from 3.0% could also weigh on the Euro. On the downside, previous week’s low of 1.053 would act as key support to the pair. Only a move below 1.053 would weaken the pair towards 1.0480. EURINR (March) is expected to dip towards 86.50. A move below 86.50 would weaken further towards 86.00. On the upside 87.50 holds key resistance to the pair

* The pound slid below its January 2023 lows as the dollar rallied after Fed chair signalled further tightening of monetary policy. Earlier, the pound gained after British house price jumped in February. The Halifax HPI marked again of 1.1% against the forecast of -0.6%

* The pound is expected to trade with a weaker tone as traders expect there to be less room for the BoE to match the pace of the Fed. Further, a rally in the dollar and diminishing global risk appetite could also weaken the pair towards 1.1780. The 20 day EMA at 1.2010 acts as key resistance. GBPINR (March) has failed to hold the key support at 98 and it is expected to weaken towards 96.80-96.60

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