The BoE will “act forcefully” to combat rising prices

Key highlights

Soaring food prices pushed British consumer price inflation to a 40-year high of 9.1% last month, the highest rate out of the Group of Seven countries and one which underlines the severity of the country's cost-of-living crunch. The reading was up from 9.0% in April and matched the consensus of a Reuters poll of economists. The BoE will "act forcefully" to combat rising prices, the British finance minister said.

Some Bank of Japan board members were concerned that excessive currency volatility could disrupt corporate business plans, minutes of the bank's April meeting showed, highlighting the challenge for policymakers from the yen's sharp declines. But many board members stressed the need to maintain the BOJ's massive stimulus programme to support a still-fragile economy, the minutes released showed, a sign they saw no need to tweak Japan's ultra-low interest rates to stem the yen's slide.

The Reserve Bank of India's Monetary Policy Committee members were unanimous in stressing the need to bring inflation within the central bank’s tolerance band, the minutes of the rate-setting panel’s latest meeting released show.

USD/INR movement

The USDINR pair made a gap up opening at 78.12 and traded within the range of 78.12-78.39. The pair recorded an all-time high today to close at the level of 78.385. Persistent FII selling in the domestic market and broad strengthening of the dollar ahead of the Fed chair Powell continue to keep the domestic currency under pressure. The focus will be on Powell's testimony due today for further cues on rates trajectory.

Global currency updates

The USDJPY is taking a breather under a new 24-year high, as overbought conditions prompt some profit-taking after the pair saw levels last seen in 1998. The overall picture shows bulls fully in play, as the dollar remains well supported by strong safe-haven demand, expectations for the Fed to remain hawkish in coming months, and weakness of its major counterpart. The GBPUSD met fresh bearish pressure early today and declined below 1.2200. The risk-averse market environment and inflation data from the UK weighed on the pair mid-week. The EURUSD pair lost its bullish momentum early today and retreated below 1.0500 before recovering modestly. With safe-haven flows returning to markets amid escalating recession fears, however, EURUSD reversed its direction.

Bond market

U.S. Treasury yields were lower as risk-off sentiment returned to global markets. The yield on the benchmark 10-year Treasury note was down at 3.201%. Concerns over a possible recession have weighed on investor sentiment in recent weeks. Indian bond yields edged lower as investors drew comfort from a sharp fall in global crude oil prices, which if sustained will bring down imported inflation and reduce the need for aggressive monetary policy tightening. India's benchmark 10-year bond yield fell by more than 5 bps on the day to 7.396%.

Equity market

Indian equity benchmarks Sensex and Nifty 50 snapped a two-day winning run tracking nervousness across global markets as investors awaited a key testimony by Fed Chair Jerome Powell due later in the day. Financial, media, metal, and IT shares were the biggest contributors to the fall in headline indices. Broader markets mirrored the losses. The Nifty midcap 100 and the Nifty small cap 100 fell around 1.5% each.

Evening sunshine

Focus to be on the US Fed Chair Powell testimony.

European stocks fell sharply, giving up gains made in the previous sessions as global volatility continues. Wall Street futures fell after a broad-based rally in the previous session, with investors focusing squarely on Federal Reserve Chair Jerome Powell's congressional testimony to gauge the pace of future interest rate hikes. Fed Chair Jerome Powell will appear before Congress today, kicking off two days of testimony.