Following a recovery in the dollar and weaker Chinese currencies, the Indian rupee concluded the prior week on a negative note. The local unit dropped for the second consecutive week to close at 82.77, the lowest level since February 2023. The rupee fell after reaching 82.50, despite significant inflows of foreign capital. Foreign institutions have purchased securities worth $163 million in debt and $753 million in shares so far this month.
The RBI has actively increased its foreign exchange reserves by adding dollars while removing liquidity from the market. For the third week in a row, India’s foreign exchange reserves increased to $599.53, reaching its highest level since June 10, 2022. The RBI said over the weekend that it would remove the highest-value currency note from circulation. This move will increase system liquidity, which will drive down the short-term yield and weaken the rupee.
By maintaining above 82.30 and generating a bullish sequence of higher tops and bottoms on the daily chart, the technical set-up for spot USDINR turned positive last week. Support is found at 82.30 while resistance is found at 83.10.
As Fed Chair Jerome Powell gave a clear indication of a June rate pause on Friday, the dollar fell for the first time in four days, trimming its weekly gains to 103.20, up 0.50 and the second straight week of gains. Policymakers can now, according to Powell, “afford to look at the data and the evolving outlook to make careful assessments.”
The euro is trading near its 100 DMA at 1.0808 as the ECB faces a crucial decision since it must maintain its monetary policies even as CPI growth shows indications of slowing. The pound manages to pare its losses ahead of UK inflation data due the following week, which will be looking for signs of easing pricing pressures due to base effects.
In the coming week, the FOMC meeting minutes from May 2-3 will be released to show how the committee determined that 5.25% was the highest rate, and PCE data will be released to highlight the ongoing strength of US inflation. Base effects will bring inflation down, according to the UK CPI. Lenders in China are anticipated to maintain stable prime rates, and Japan’s CPI will reveal that the Bank of Japan is dealing with the incorrect kind of inflation.
