Rupee ended lower, Dollar higher vs. major currencies

Tuesday,   31-Jan-2023   04:13 PM (IST)

The Indian rupee recorded its steepest drop in about two months today and ended the session weaker at 81.92/93 levels compared to its opening at 81.58/59 levels after touching the low of 82.07/08 levels with traders blaming custodial outflows amid the volatility in equities ahead of the domestic budget and the U.S. Federal Reserve's meeting. The rupee's sharp decline on the day was largely due to custodial outflows, plus stop losses being triggered once the dollar index jumped in late afternoon trade. Investors remained nervy due to volatile Indian equities as the Adani Group's rout continued to weigh. Rupee traded in the range of 81.58-82.07 levels. India's Union budget is due on Wednesday, in which the focus will be on the government's fiscal consolidation path. Asian emerging market currencies and stocks declined as the dollar index climbed ahead of the crucial Fed meeting, which will be followed by central bank meetings in Europe and England on Thursday. Indian government bond yields ended lower today after rising for the last three sessions, triggered by short covering and as the government plans to issue a new 10-year paper this week. Equity markets remained range bound in today's choppy session after the economic survey for 2023-24 pegged the FY24 GDP growth at 6.5% in a baseline scenario, compared to 7% in the current fiscal.  The real GDP growth is being seen between 6-6.8% next fiscal depending on global economic and political developments, the survey said. The nominal GDP has been estimated at 11 per cent for FY24. Benchmark indices Nifty50 closed at 17,662 levels, up 13 points or 0.07%, while the S&P BSE Sensex closed at 59,550 levels, up 50 points or 0.08%. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 2.06%, 2.57% and 2.45% respectively.

The dollar ticked higher on Tuesday ahead of a raft of central bank decisions but remained on track for its fourth consecutive monthly loss. The Federal Reserve will set interest rates on Wednesday, followed by the European Central Bank (ECB) and Bank of England (BoE) on Thursday. Currencies struggled for direction overnight, with the euro slipping against the dollar in early trade in Europe and was last down 0.41% at $1.081. The euro remains up more than 0.8% for the month and is loitering near a nine-month peak after falling energy prices gave the euro zone economy a reprieve. The U.S. dollar index, which gauges the currency against major peers, was up 0.31% at 102.56 on Tuesday. Yet it was down around 0.9% for January as a whole. That meant it was set for its fourth monthly drop, having fallen around 11% since hitting a 20-year peak in late September. A busy week for markets continued on Tuesday as investors awaited fourth-quarter economic figures for the euro zone. Data on Monday showed Germany's economy unexpectedly shrank in the final quarter of 2022. The big event of the week comes on Wednesday, when the Fed is expected to raise interest rates by 25 basis points (bps), its smallest increase since March 2022, to a range of 4.5% to 4.75%. Pricing in derivatives markets suggests the market expects further tightening, before cuts later in the year. Investors then expect the ECB and BoE to raise their main interest rates by 50 bps each on Thursday. Sterling was last 0.29% lower at $1.231, but was on track for its fourth monthly increase. The yen was up 0.1% at 130.34 per dollar and was set for its third monthly gain, with markets anticipating a shift in Japanese monetary policy. Markets mostly shrugged off slightly better-than-expected Chinese manufacturing data, which showed a welcome return to growth in January, with focus now on the recovery ahead.