FX weekly outlook

Major Developments

The ECB held monetary policy steady but tweaked its guidance to reflect its recently-hiked inflation target. It has committed to purchasing 1.85 trillion euros of bonds until March 2022 as part of its PEPP.
Weekly jobless claims unexpectedly moved higher despite hopes that the U.S. labour market is poised for a strong recovery heading into the fall. Initial filings for unemployment insurance totalled 419,000 for the week ended July 17.
India’s forex reserves rose by USD 835 million to touch USD 612.73 billion in the week ended on July 16, 2021.

USDINR Weekly performance & Outlook

The USDINR pair made a gap up opening at 74.74 during the eventful week. The pair finally closed the week at 74.40 levels.
Some foreign banks were said to have sold dollars likely for inflows into Indian companies looking to raise funds through offshore investors, which supported the Indian rupee.
Indian Rupee has been a relative outperformer given that the COVID situation has been under control and the pace of vaccinations is higher compared to other countries in the region. Inflows on account of record Initial Public Offerings in July have also supported the Rupee.
The Reserve Bank of India stated that it is working towards a phased implementation strategy for its digital currency and examining use cases where it can be deployed with little disruption.
At Friday’s weekly bond auction, yields on the new 10-year benchmark 6.10%-2031 bonds rose after the RBI partially devolved the benchmark bonds on PDs.
The FOMC policy late Wednesday evening is the major risk event this week. We do not expect any major changes in the policy statement. The Fed would continue to focus on recovery in the labour market.
The USDINR pair is likely to trade with a sideways bias in the week ahead and is likely to trade in a range of 74.10-75.10 in the coming week.

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