- USD/INR is hopeful to recapture last week’s high at 80.20.
- The odds of a 1% rate hike by the Fed have trimmed vigorously.
- FIIs are returning to Dalal Street as Indian benchmarks are in a recovery mode.
The USD/INR pair is advancing to recapture its all-time high at 80.18, recorded last week. The greenback bulls are driving the asset higher despite the release of the long-run inflation expectations on a weak note. This indicates that the market participants are expecting a peak sooner in the price pressures.
The economic data landed at 2.8% lower than June’s print of 3.1%. This has trimmed the expectations of a 100 basis point (bps) interest rate hike by the Federal Reserve (Fed) for its July monetary policy meeting. As per CME’s FedWatch Tool, the expectations of a rate hike by 1% were as high as 80% last week, which have trimmed to near 30%.
Meanwhile, the US dollar index (DXY) is attempting a recovery after hitting a low of 107.00 on Monday. A sheer downside move is generally followed by a pullback but that doesn’t warrant a reversal for the asset.
On the Indian rupee front, price pressures are cooling off meaningfully amid vulnerable oil prices in July. The higher inflation rate in prior months was backed by soaring energy bills and food prices. Now, lower oil prices will scale down the fiscal deficit for the Indian economy. India’s Consumer Price Index (CPI) has landed at 7.01% for June and 7.04% for May, which indicates that the inflation rate in India is finding its peak levels. Also, a recovery in Indian indices has bolstered the return of Foreign Institutional Investors (FII), which will correct the India fiscal deficit further.
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