FX weekly outlook

Major Developments

• The US Consumer prices rose at the fastest annual rate since 2008, the CPI surged 5% in May from a year prior.

• The ECB chose not to signal when it might start reducing its pandemic-era stimulus program and expects inflation to remain below its target in the foreseeable future.

• India’s forex reserves crossed the USD 600 billion mark for the first time after increasing by USD 6.84 billion in the week ended on 4th June. The reserves surged to a record of USD 605 billion.

USDINR Weekly performance & Outlook

• The USDINR pair made a gap down opening at 72.86, however, the dollar strengthened against the rupee to close the week at 73.07 levels.

• The rupee wiped off gains against the dollar because major state-owned banks purchased the greenback persistently, likely on behalf of oil importers who stepped up their demand for the dollar after noting the further rise in crude oil prices.

• The World Bank has revised lower India's growth forecast for FY22 to 8.3% from 10.1% citing the impact of the second wave on economic activity.

• The RBI devolved the 10-year benchmark G-Sec on PDs at the weekly auction. PDs, who underwrite G-Sec auctions, had to pick up ₹9975.76 crores worth of this paper out of the total notified amount of ₹14,000 crores. 

• Besides the staff economic projections and dot plot, the focus will also be on what the Fed has to say about the record daily liquidity absorption through reverse repos.

• The market participants have a lot of expectations from the 16th June Fed monetary policy. Two key factors which Fed focuses on are inflation and job numbers. The core PCE to be the best gauge of inflation rose faster than expected at 3.1% in April as price pressures built in the rapidly expanding U.S. economy. But the job report is still not up to the mark that fed considers for tapering.

• The Indian rupee is likely to trade with a neutral to upside bias. The focus will be on Retail Sales, Industrial Production, Fed Interest Rate Decision, and Initial Jobless Claims data from the U.S. and WPI and CPI Inflation data from India. The USDINR pair is likely to trade in a range of 72.75-73.70 in the coming week. 

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