Bounce in US & European Stocks Impede Rise in USD/INR to Hold Below 74.40 Level

Published 30-07-2021, 11:42 am
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USD/INR opened the day at 74.31, little changed from its previous day’s close. Due to a fall in US yields and the US Dollar trading weaker below the 92.00 level, we expect the currency pair to test the support at 74.20 before the middle of next week.

The dollar is trading weaker now at 91.96 on the back of a statement from Jerome Powell that the nation’s labor market has still some ground to cover before withdrawing the massive USD 120 billion stimulus. Fed has not given any timeline for tapering of asset purchases and this led to solid gains in major currencies against the dollar. The Pound continued its rally against the dollar to trade at 1.3950, more than 1-month high as Government eases covid restrictions. Euro also jumped to more than 3-week high of 1.1880. Yen also gained significantly to currently trading at 109.50. Backed by a dovish stance from the Federal Reserve, the Chinese Yuan significantly recovered from the low of 6.5110 on Wednesday to 6.4580 as of now.

We have witnessed broad-based buying and bullish trends in global stocks after China stepped in to comfort the markets. The local stocks are trading on a positive note after two days fall in the BSE Sensex on Tuesday and Wednesday. Also, the gain in the global stock markets is supported by Fed’s hint about moving very gradually toward tapering stimulus.

Major stock indices in Europe have traded higher on Thursday as the economic sentiment indicator in the Euro area rose for a 6-month in a row to an all-time high of 119.0 in July 2021, beating markets expectations. France CAC 40 traded near 20-year on Thursday outperforming its European peers driven by strong earnings result from Airbus.

The US 10-year yield is trading lower at 1.25% after the Fed hinted that progress has been made toward conditions for tapering bond buys as the economy has improved. Still, policymakers offered no details on the timeline and mechanics for tapering, and stressed risks to the outlook remain. Bond yields fell more than 20 bps for the month so far and the 10-year bond yield fell for the fourth consecutive month. The spread differential between the 10-year and 2-year yields narrowed to 104 bps.

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