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Rupee ended almost flat, Euro lower vs. Dollar

Thursday,   25-May-2023   04:09 PM (IST)

The Indian rupee ended the session almost flat at 82.74/75 levels compared to its opening at 82.7550/7650 levels. Rupee traded in the range of 82.7125-82.7750 levels today. Rupee had opened lower today and premiums also dropped, pressured by higher U.S. yields, while likely dollar inflows limited the domestic currency's fall. Likely dollar inflows from corporates and foreign investment into equities have also limited the downfall of the rupee. Tracking rising U.S. treasury yields, the USD/INR 1-year implied yield dropped to 1.95%. Indian government bond yields were higher tracking rise in U.S. yields. Indian shares advanced on Thursday, led by fast moving consumer goods and realty stocks, while the ongoing U.S. debt talks weighed on sentiment and capped gains. The blue-chip Nifty 50 index closed 0.20% higher at 18,321.15, while the benchmark S&P BSE Sensex rose 0.16% to 61,872.62. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 1.44%, 1.54% and 1.66% respectively.

The euro dropped on Thursday as Europe's largest economy Germany was confirmed to be in a recession, while the dollar hit a two-month peak, benefitting from safe-haven demand as worries mounted about a U.S. default. The latest concern was raised by ratings agency Fitch, who put the United States' "AAA" debt ratings on negative watch, a precursor to a possible downgrade should lawmakers fail to agree to raise the debt limit. The greenback has paradoxically benefited from demand for safe havens with only a week left for a resolution to slow-moving debt ceiling talks before the June 1 "X-date", when the Treasury has warned it will be unable to pay all its bills. Escalating signs of economic malaise in Europe sent the euro to multi-month lows against the dollar. The latest sign of weakness out of Europe came from Germany, where the economy contracted slightly in the first quarter, and thereby was in recession after negative growth in the fourth quarter of 2022. The U.S. dollar index, which measures the currency against six major peers and is heavily weighted towards the euro, rose as much as 0.3% to 104.16, the highest since March 17. The euro slipped about 0.2%, enough to refresh a two-month low at $1.0715. The U.S. currency has also been supported by a paring of bets for Federal Reserve rate cuts this year, with the economy proving resilient to the effects of the central bank's aggressive tightening campaign until now. U.S. money market traders have trimmed expectations for Fed rate cuts this year to just a quarter point in December, from as much as 75 basis points previously. They have also ramped up odds for another quarter-point hike in June back to about 1-in-3, after several Fed officials struck hawkish postures recently with consumer inflation still running about twice the 2% target, and the minutes from the latest meeting showing "almost all" policymakers saw upside risks to inflation. The Chinese Yuan renewed a six-month low, dropping to 7.0903 per dollar in the offshore market. The Asian giant has produced a cascade of disappointing economic indicators, all pointing to dull consumer demand and suggesting a post-pandemic recovery has already run its course.