Rupee ended lower, Dollar falls vs. major currencies

Wednesday,   19-Dec-2018   05:23 PM (IST)

The Indian rupee ended the session lower at 70.40/41 levels compared to its opening at 70.10/11 levels after touching the low of 70.4750/4850 levels on dollar bids from at least one state-run bank and a private lender likely on the instruction of the Reserve Bank of India. Early today rupee rose to 69.85/86 levels tracking an overnight slump in crude oil prices, while investors awaited the U.S. Federal Reserve’s decision on interest rates and future guidance later today. Fall in crude oil prices strengthened the rupee while inflows into local equities this month also helped it to make gains. Indian shares ended higher today, underpinned by financials, after the central bank announced liquidity injection via open market bond purchase for January, and as crude prices hovered near 14-month lows. The benchmark BSE Sensex closed 0.38 percent firmer at 36,484.33. The broader NSE Nifty ended 0.54 percent higher at 10,967.3. Indian government bonds rose for a second session, as the central bank scaled up the quantum of open market purchase of notes and lower oil prices improved inflation outlook. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 3.99%, 3.80% and 3.95% respectively.

The dollar fell on Wednesday as investors bet that the Federal Reserve would signal plans to slow its pace of interest rate raises at a keenly-watched meeting later in the day.  Fed policy makers are widely tipped to raise rates for a fourth time this year but also to express caution about future monetary tightening due to concern about slowing global growth. Expectations of a pause from the Fed amid a U.S.-China trade conflict and global financial market volatility has led some investors to question if the dollar’s stellar run will continue into 2019. U.S. President Donald Trump has repeatedly berated the Fed and on Tuesday said in a Tweet it was “incredible” for the central bank to even consider tightening given global economic uncertainties. The safe-haven yen and the Swiss franc both strengthened as an overnight plunge in oil prices provided a stark reminder of the dimming prospects for the global economy. Risk sentiment has been soured by weaker-than-expected economic data out of China and the eurozone. The euro was also supported by news that Italy had struck a deal with the European Commission over its contested 2019 budget, signaling an end to weeks of wrangling that had shaken financial markets. Comments by Fed Chairman Jerome Powell in late November that the key interest rate was “just below” neutral, a level that neither brakes nor boosts the economy, have bolstered investor expectations that U.S. central bank is nearing a pause on its monetary tightening. However, some analysts still see the Fed raising rates 2-3 times in 2019.