FX Weekly Outlook: The US GDP grew 7% in the 4th quarter

Major Developments

• The U.S. grew 7% in the 4th quarter, GDP shows, but the economy enters a more uncertain period.
• The RBI MPC minutes show monetary policy will support domestic growth over global concerns amid the Ukraine crisis.
  
• The German economy contracted in the final quarter of 2021 due to rising Covid-19 cases and related restrictions as the GDP slipped an adjusted 0.3% q-o-q.
  
• India’s forex reserves increased by USD 2.76 billion to USD 632.95 billion for the week ended February 18.

USDINR Weekly performance & Outlook

• The USDINR pair made a gap-down opening at 74.50 levels. The pair remained volatile during the week and closed at 75.29 levels.
   
• The USDINR pair rose as the safe-haven US dollar remained sharply up against other major currencies after the Russian President announced that he had authorized a military operation in Ukraine. The USDINR pair also rose because foreign and state-owned banks persistently purchased US dollars on behalf of oil marketing companies.
  
  
• Prices of crude oil surged globally with Brent crude prices breaching the $100-a-bbl mark for the first time since 2014 after Russia attacked Ukraine, leading to concern that a war in Europe could disrupt global energy supply. The RBI announced a USDINR sell/buy swap auction of $5 billion will is scheduled to take place on 8th March.  This move is likely to help in levelling the rupee liquidity in the system ahead of the LIC IPO, which could lead to a gush of US dollar inflow.
  
  
• The Federal Reserve reiterated its view that it will “soon” be time to raise interest rates to counter high inflation amid a buoyant U.S. job market. The Fed stated that it will soon be appropriate to raise the target range for the federal funds rate,” citing inflation well above its 2% target and a “strong” labor market in its semi-annual report to Congress released, ahead of testimony to lawmakers next week by Chair Jerome Powell.

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