Amidst a strong dollar, an increase in US Treasury yields, and risk aversion in the global markets, the rupee declined sharply in the previous week, breaking through the significant resistance level of 83.00. The US economy was shown to be resilient by a deluge of strong economic data, which gave the dollar and yields a boost.
This reinforced predictions that the US Federal Reserve would maintain higher rates for a longer period of time. Additionally, according to the minutes of the FOMC meeting, although officials disagreed on the necessity of further rate increases, most decision-makers nevertheless gave the fight against inflation top priority.
With US government yields rising and gloomy market sentiment around the world, we anticipate the Dollar Index to maintain its pace and increase further to 104 levels. Investors’ concerns about recent economic statistics indicating the economy’s resiliency and the Federal Reserve’s increased ability to maintain higher rates are harming market confidence. The property market turbulence and a flood of discouraging economic statistics from China further projected a bleak picture of the post-pandemic recovery.
However, we do not expect the dollar index to rise beyond 104 levels before important US economic data and in anticipation of additional Chinese stimulus measures. Data from the US is likely to reveal that service sector activity is still slowing down and that manufacturing activity declined for the fourth consecutive month. Additionally, the Jackson Hole Economic Policy Symposium speech by US Federal Reserve Chairman Powell will be closely watched for hints on the direction of interest rates.
