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Rupee ended lower, Pound lower vs. Dollar

Wednesday,   22-Jun-2022   04:07 PM (IST)

The Indian rupee ended the session lower at 78.3850/3950 levels compared to its opening at 78.13/14 levels after touching the low of 78.39/40 levels as mounting concerns about the risk of a global recession from the impact of aggressive bouts of rate hikes by central banks dampened demand for riskier assets. Rupee traded in the range of 78.13-78.39 levels today. Most major economies are withdrawing pandemic-era policy support measures at a quicker pace to rein in inflation, even as the threat of a global economic slowdown dented appetite for riskier assets. Most regional currencies slipped. Indian federal government bond yields crashed, with the benchmark 10-year yield ending at its lowest level in almost four weeks as oil prices tumbled, easing worries over runaway inflation. Market participants now await the minutes of the Monetary Policy Committee’s latest meeting for further cues on interest rate trajectory. India’s equity gauge, the BSE Sensex fell nearly 1.44%, in line with Asian shares. The BSE Sensex index ended at 51,823 down 710 points or 1.35%. The Nifty50 closed at 15,413, down 226 points or 1.44%. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 2.35%, 2.36% and 2.47% respectively.

The British pound pulled back on Wednesday after data showing UK consumer inflation hit a new 40-year high raised fresh worries over an economic slowdown, just as the Bank of England looks set for more interest rate hikes in the coming months. Soaring food prices pushed consumer inflation to 9.1% in May, the highest rate in the Group of Seven countries and underlining the severity of the cost-of-living crunch in the world's fifth-largest economy. The figure was in line with market expectations and following its release money markets continued to fully price in a 25 basis point (bps) BoE rate hike in August. The odds of a 50 bps hike slimmed to just above 60% from around 74%, even though analysts said a such a move was still on the cards. Sterling fell against a stronger U.S. dollar but came off near one-week lows hit shortly after the data. By 0927 GMT it was down 0.4% at $1.223 following two days of gains. Versus the euro, the pound fell 0.2% to 85.96 pence. The BoE raised its benchmark rate by 25 bps to 1.25% last Thursday and said it was ready to act "forcefully" if needed to stamp out dangers posed by inflation, although that lagged stronger action from other central banks including the U.S. Federal Reserve. Traders were also keeping an eye out for two by-elections on Thursday: one in Tiverton and Honiton and another in Wakefield in northern England. Defeat in either place may further dent Prime Minister Boris Johnson's vote-winning reputation, and see lawmakers who fear for their futures try to move against him despite giving him a reprieve by calling and losing a confidence vote against him earlier this month. Concerns over the British economy and the slower pace at which the BoE is expected to tighten policy compared to other central banks have made investors bearish on the pound.