Volatility in rupee likely to remain low this week
A dovish outlook by the RBI restricted major gains in the rupee.
The rupee consolidated in a broad range after the RBI in its policy statement, released earlier this month, decided to cut rates by 25 basis points and maintained its stance neutral.
A dovish outlook by the RBI restricted major gains in the currency. On the domestic front, inflation and industrial production numbers were released last week. Inflation in March rose to 2.8 per cent compared with 2.57 per cent in the previous month. On the other hand, industrial production in February rose at a modest pace compared with a growth of 1.7 per cent in the previous month.
Last week, movement of the currency was more influenced by volatility in global factors than on the domestic front. This is a relatively shorter week and muted economic calendar could keep the volatility low for the currency.
Euro finally managed to move higher after remaining under pressure in the last few weeks, following strength in the US dollar and uncertainty related to Brexit kept market participants on the sidelines.
The currency moved higher despite a dovish outlook by the ECB. The central bank, in line with expectations, held rates unchanged, but hinted that officials do not expect to raise rates for the whole of 2019.
In its last meeting the ECB decided to introduce TLTRO-III from when the currency was weighed down against the US dollar. Economic number released from the Euro zone have been muted and failed to have an impact on the currency. This week, market participants will be keeping an eye on preliminary manufacturing and services PMI and better-than-expected number could extend gains for the currency.
The UK finally managed to extend the deadline to October and that too after months of negotiation and discussions. The new deadline of October 31 means the UK is likely to have to hold European Parliament elections in May.
The prime minister said that if the deal agreed with the EU was passed, the UK could leave the EU "as soon as possible". Theresa May secured another delay to Brexit in Brussels this week, parties are now preparing for the European elections despite the government’s insistence that Britain could still leave the bloc without having to take part.
This week, from the UK, employment numbers will be important and better-than-expected number could extend gains for the currency. Now that the Brexit deadline is pushed forward it is more likely that pound could start to gain momentum and move higher. The GBP-USD pair is likely to quote in the range of 1.2980 and 1.3250.
(Gaurang Somaiya is currency analyst at MOFSL)