Wednesday, May 18, 2011

Currency market update

The Indian rupee fell on risk aversion on Monday tracking other high yielding currencies. The
dollar reached 45.16 rupees on Monday, compared to 44.87 on Friday. The greenback touched
an intraday high of 45.19 rupees, the highest level since March 17.FII have turned cautious
over the economy's growth prospects, with capital flowing out after the Reserve Bank of India
increased interest rates by a higher-than-anticipated 0.50% on 3rrd May. This has been
pressurizing Indian rupee after the RBI meeting while stocks dropped. The Indian foreignexchange
and bond markets are shut Tuesday for a religious holiday. The USDINR may open
In global FX market on Tuesday, the Euro and GBP recovered after the EU meeting. EUR found
some positives from the noise out of the meeting with Portugal’s €78 bln rescue package
approved, with 1/3rd IMF backing, while other finance ministers called for more structural
reforms and extended repayment terms. Germany’s Merkel repeated that it is still not in
Germany’s interest for any member to leave the EU. The EURUSD is at 1.4278 and GBPUSD at
1.6278. There is a possibility of further recovery of European currencies today.
The BoE and FOMC minutes of the recent monetary policy meeting is due which is the major
theme for FX market today. BoE minutes should provide a better picture as to where the
committee stands on rates. MPC voters find themselves in a difficult position with regards to
agreeing to move on interest rates. Although recent data out of the UK continues to suggest
sluggish growth, pressure on the committee may mount as other European policy makers
remain focused on addressing high rising inflation.
The FOMC minutes released to be released today should give insight as to the Fed’s outlook
on interest rates as the $600B quantitative easing program is set to expire next month. US
dollar is trading flat before the FOMC minutes today.

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