Currency Map:

USD/INR 74.69 75.04 -0.46
EUR/INR 85.61 83.60 2.40
GBP/INR 101.55 100.51 1.03
JPY/INR 64.99 64.95 0.06

Brent Crude closed at USD 92.80 VS prior week close of USD 89. Gold closed at USD 1808.Nifty closed at 17516 vs prior week close of 17101. 10 Year G-SEC Yield closed at 6.87%.

Major developments: USDINR traded in the 74.42-75.05 range and closed at 74.69 as against prior week close of 75.04. Rupee gained 0.46% w/w. EUR climbed 2.40% and GBP gained 1.03% w/w against Rupee. Indian benchmark Equity index gained 2.42% w/w. 10 Year G-SEC Yield closed at 6.87%. 1 year fwd premia is at 4.42% p.a.

Union budget, ECB and BOE meetings along with important economic data from US dominated this week developments. Rupee maintained a relatively steady movement, despite further surge in Crude and metal prices. Imported inflation could force RBI to cap any Rupee weakness.

Union budget has given thrust to Infrastructure led growth through significant increase in capital expenditure. GST Collections rose to record high of 1.4 lac Cr in Jan. Fiscal deficit is likely to be at 6.4% in 2022-23 with GDP expected to grow between 8 to 8.5%. RBI is meeting on Feb 7 th. RBI may withdraw liquidity in a phased manner and set the stage for rate hikes in last quarter of this year.

Indian Equity markets continued to remain volatile, tracking Global volatility in stocks. IIP and CPI data are focus events along with RBI meeting.

In Feb, FII’S have net sold Rs 1589 cr in Equity segment and have net sold Rs 692 cr of debt. In this financial year, FII’S have net sold Rs 34311 Cr worth of Indian Equities and have bought Rs 5816 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.


Global developments: The week was dominated by ECB and BOE decisions. Euro was a winner as ECB finally acknowledged that inflation is entrenched. This was the first change in stance, though no rate hikes are expected this year. However, short covering propelled Euro to 1.1475 levels. Strong US employment data checked Euro’s rally beyond 1.1475.

Pound sterling could not get further lift despite BOE’S rate hike. BoE raised Bank Rate by 0.25% to 0.50% , by a slight majority of 5-4 vote. Going forward, the extent of any further tightening in monetary policy will “depend on the medium-term prospects for inflation”. If the economy develops broadly in line with the February Report central projections, “some further modest tightening in monetary policy is likely to be appropriate in the coming months.”

ECB kept interest rates unchanged. The main refinancing rate, marginal lending facility rate and deposit facility rate are held at 0.00%, 0.25%, and -0.50% respectively.

It maintains the forward guidance that interest rates will “remain at their present or lower levels” until ECB sees inflation “reaching 2% well ahead of the end of tis projection horizon and durably for the rest of the projection horizon”. 

ECB President Christine Lagarde admitted in the post-meeting press conference that inflation surprises caused unanimous concerns in the Governing Council.

US employment and ISM data were strong, indicating that US has successfully weathered the negative economic effect of Omicron.

US non-farm payroll employment grew 467k in January, well above expectation of 150k. Prior month’s figure was also revised sharply up from 199k to 510k. Employment was still down -2.9m or -1.9% from its pre-pandemic level in February 2020.

Unemployment rate, however, ticked up from 3.9% to 4.0%, versus expectation of 3.9%. Participation rate rose from 61.9% to 62.2%. Average hourly earnings posted strong growth of 0.7% mom, above expectation of 0.5% mom.

US manufacturing and services sector indexes slowed in January, but continued to expand at an above-trend rate, with readings of 57.6% and 59.9%, respectively . 

US Yields jumped sharply as Fed will act on the strong data and increase rates in March. Equity markets had roller coaster ride due to disappointing results from leading tech companies.

Focus is now on US CPI.

Currency range : USDINR: 74.40( support), 75.05 (resistance), EURINR: 84.75 (support)/ 85.65 (Resistance), GBP/INR: 100-101.80, JPY/INR:63.50-65.50.

Suggestions: USD exports can be covered from 75.05+. EURINR exports can be covered at around 85.65/86.15+. Payables can be covered at 84.75 and 84.20.  GBPINR exports can be covered at 101.50+

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