FX weekly outlook

Major Developments

• FOMC Minutes from the July Federal Reserve meeting released, indicate a willingness to start reducing asset purchases before the end of the year.

• The Eurozone Consumer Price Index for July came in at 2.2% on a yearly basis, meeting the flash estimate of 2.2%. The Eurozone GDP grew 2% (q-o-q) in Q2. On a yearly basis, GDP rebounded 13.6%.

• India's forex reserves decreased by USD 2.10 bn to stand at USD 619.37 bn for the week ended on August 13 due to a fall in core currency assets and gold.

USDINR Weekly performance & Outlook

• The USDINR pair made a flat opening at 74.24 during a shortened week. The pair finally closed the week at 74.39 levels.

• The rupee fell modestly against the dollar because the greenback moved near its nine-month high after minutes of the FOMC's July meeting suggested that the US central bank may start tapering its monthly purchases by the end of this year.

• Moreover, lockdowns due to rising cases of the Delta variant of COVID-19 across several Asian countries led to concerns of a slower-than-expected economic recovery among investors. This led investors move to safe-haven currencies, dampening sentiment for emerging market assets including the Indian rupee.

• India Ratings and Research have revised India's GDP growth forecast for FY22 to 9.4% year-on-year, saying that the country's economic recovery would depend on the progress of its vaccination drive.

• India’s WPI inflation fell to 11.16% in July from 12.07% a month ago as food inflation was eliminated and fuel inflation eased.

• The Federal Reserve’s efforts to reverse its easy policy will be a dominant theme for markets in the week ahead, as US central bankers gather in Jackson Hole, Wyoming. The USDINR pair is likely to trade with a neutral to bullish bias in the week ahead and is likely to trade in a range of 74.00 - 75.00 in the coming week.

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