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Rupee ended lower, Euro higher vs. Dollar

Monday,   23-Jan-2023   04:01 PM (IST)

The Indian rupee ended the session lower at 81.39/40 levels compared to its opening at 80.94/95 levels after touching the low of 81.50/51 levels on dollar purchases by public sector banks likely for the Reserve Bank of India (RBI). Rupee climbed to a near two-month high at open. Rupee traded in the range of 80.89-81.50 levels. The RBI's dollar purchases and the dollar index's tumble have helped the Indian reserves rise to $572 billion, their highest level since early August. That compares to the near $525 billion-level print around mid-October. The positive risk sentiment alongside expectations of milder U.S. Federal Reserve rate hikes dampened the demand for the greenback. India's government bond yields ended largely unchanged today the beginning of a week filled with heavy supply, which dampened investor sentiment. Indian stocks rose after two straight sessions of declines, helped by gains in financial stocks as banks reported strong quarterly results over the weekend. The BSE Sensex closed 320 points higher at 60,942. The NSE Nifty rose 91 points to end at 18,119. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 1.85%, 2.54% and 2.39% respectively.

The euro hit a nine-month peak against the dollar on Monday as comments on European interest rates signalling additional jumbo rate rises contrasted with market pricing for a less aggressive Federal Reserve. The euro reached as high as $1.0927, breaking the recent peak of $1.08875, to trade at its highest level since April last year. It was aided by European Central Bank (ECB) governing council member Klaas Knot, who said interest rates would rise by 50 basis points in both February and March and continue climbing in the months after. A Reuters survey of analysts also favoured a hike of 50 basis points in March and an eventual top of 3.25% from the current rate of 2%. In contrast, futures have priced out almost any chance the Fed could move by 50 basis points next month and have steadily lowered the likely peak for rates to 4.75% to 5.0%, from the current 4.25% to 4.50%. Investors also have around 50 basis points of U.S. rate cuts priced in for the second half of the year, reflecting softer data on inflation, consumer spending and housing. Flash surveys on January economic activity due this week are forecast to show more improvement in Europe, in part thanks to falling energy costs, than in the United States. Much the same argument goes for sterling, with markets fully pricing in a 25 bp rate rise next week, and around a 70% chance of another 50 bp hike. The pound rose as high as $1.24475 to its highest level in seven months. It was last up 0.1% at $1.2414. The dollar was thus 0.2% weaker against a basket of currencies including the euro and pound, at 101.73 and just a whisker away from its eight-month trough of 101.510. The dollar has at least managed to steady on the yen after the Bank of Japan (BOJ) defied market pressure to reverse its ultra-easy bond control policy. Analysts assume the BOJ will stand the line until at least the next policy meeting in March, though one hurdle will be the expected naming of a new BOJ governor in February. For now, the dollar was holding up 0.2% at 129.875 yen, following last week's wild gyrations between 127.22 and 131.58. The Canadian dollar was a touch firmer at $1.3354 per U.S. dollar, ahead of the Bank of Canada interest rate decision on Wednesday, with markets expecting a quarter-point rise to 4.5%.