Rupee ended higher, Pound lower vs. Dollar

Wednesday,   20-Oct-2021   04:04 PM (IST)

The Indian rupee ended the session higher at 74.87/88 levels compared to its opening at 75.1125/1225 after touching the high of 74.8325/8425 levels as foreign banks' greenback sales, likely for their clients, prompted culling of dollar long positions. The rupee was the best performing Asian unit today. Regional currencies were helped by a pullback on the dollar index to 93.50 yesterday, its lowest level in three weeks. The pullback was attributed to an upbeat risk appetite, with the S&P 500 Index recording its fifth daily advance yesterday, just shy of clocking a fresh record high. The upbeat risk appetite sent the U.S. 10-year Treasury yield to a five-month high of 1.67% today, building on yesterday’s five-basis-point jump. Indian federal government bond yields settled lower for the first time in three sessions as speculation that the central bank might announce a debt purchase negated the impact of rising U.S. Treasury yields. The equity markets ended Wednesday's trading session with notable losses on account of profit-taking in metals, energy, capital goods and consumer-related stocks like FMCG, durables and discretionary goods & services. The Sensex ended 456 points lower at 61,260. The NSE Nifty finally settled with a loss of 152 points at 18,267. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 3.74%, 3.91% and 4.37% respectively.

Sterling laboured below a one-month high on Wednesday as traders said a dip in September inflation was unlikely to stop the Bank of England from raising interest rates soon. Consumer prices rose 3.1% in annual terms in September, easing back from 3.2% in August, the Office for National Statistics said. A Reuters poll of economists had pointed to inflation of 3.2% in September, although 11 of the 34 analysts polled predicted a slowdown. But with the Bank of England expecting inflation to surpass 4% by year-end and many economists forecasting even higher rates in 2022 after a surge in energy prices and rising pressures in the food sector, investors still see policymakers hiking soon, possibly as early as next month. The pound was down marginally at $1.3770, below a one-month high of $1.3834 reached on Tuesday. Against the euro, the pound was unchanged at 84.34 pence. Some analysts believe money market traders have gotten ahead of themselves in pricing BoE rate tightening -- markets expect a cumulative 90 basis points of hikes by September 2022 -- leaving the pound vulnerable to a batch of weak data. Although sterling has rallied in recent weeks, it has not moved as fast as might have been expected given the change in BoE rate expectations. That is because of concern the UK economy is vulnerable to tighter policy as it emerges from the pandemic, and as Brexit-related supply chain shortages and relatively high rates of COVID-19 cases keep traders cautious about the outlook.