USD/INR: Rupee Falls for Second Straight Day, Fed’s Powell Testimony Eyed

The Indian rupee slipped against the U.S. dollar for the second straight day on Tuesday as the domestic unit weighed down by greenback strength and high oil prices.

The USD/INR rose to an intraday high of 74.408 against the U.S. currency – the highest since April 28 – up from Monday’s close of 74.13. The rupee has lost over 184 paise so far this month and weakened about 26 paise in the last two trading sessions.

Indian Rupee may (trade) lower against the dollar as the greenback hovers around multi-month highs against other major currencies as Fed official Bullard added to expectations that US interest rates could rise sooner rather than later; although any sharp appreciation in the Rupee may be limited by persistent RBI intervention,” noted analyst at ICICI Bank.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.06% to 91.958. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released last week, which suggested an expectation of two rate hikes in 2023.

US dollar remains firm amid rate hike concerns as the market was still pricing in the hawkish surprise from the US Federal Reserve. Investor focus will turn to Powell’s testimony for fresh guidance on the road ahead as far as US monetary policy is concerned,” ICICI Bank’s analyst added.

The Fed will remain in focus today as Federal Reserve Chairman Jerome Powell will testify on lessons learned from the central bank’s response to the COVID-19 pandemic. Investors will wait and watch if he confirms the hawkish guidance or takes a U-turn on faster tightening.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark equity indices ended 14.25 points or 0.03% higher at 52,588.71, while the broader NSE Nifty advanced 26.25 points or 0.17% to 15,772.75.

However, foreign institutional investors were net sellers in the capital market on Monday as they sold shares worth Rs 1,244.71 crore, as per provisional data. Global oil benchmark Brent futures fell 0.24% to $74.72 per barrel.

Will Gold Survive Hawkish Fed?

The hawkish counter-revolution within the Fed continues. On Friday, St. Louis Fed President James Bullard said that the recent FOMC shift towards a faster tightening of monetary policy was a natural response to faster economic growth and higher inflation than anticipated:

We were expecting a good year, a good reopening, but this is a bigger year than we were expecting, more inflation than we were expecting, and I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.

Bullard also noted that “Powell officially opened the taper discussion this week”. Indeed, in my Friday edition of the Fundamental Gold Report , I focused on the changed dot-plot , which suggested that FOMC members were ready to hike interest rates twice in 2023. However, the second major shift in the stance of the US central bank was that the Fed officials started to “talk about talking about” tapering.

In his prepared remarks for the press conference, Powell said:

At our meeting that concluded earlier today, the Committee had a discussion on the progress made toward our goals since the Committee adopted its asset purchase guidance last December. While reaching the standard of “substantial further progress” is still a way off, participants expect that progress will continue. In coming meetings, the Committee will continue to assess the economy’s progress toward our goals. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.

In plain English, it means that the Fed could announce tapering at any of its future meetings, depending on the assessment of the incoming data. However, to avoid a replay of the taper tantrum , the Fed will “give advance notice before announcing any decision”. So, September is the first probable date of a hawkish announcement about tapering of quantitative easing , which could be preceded by some clues as early as in July:

That is, you know, the process that we’re beginning now at the next meeting. We will begin, meeting by meeting, to assess that progress and talk about what we think we’re seeing, and just do all of the things that you do to sort of clarify your thinking around the process of deciding whether and how to adjust the pace and composition of asset purchases.

Another hawkish shift in the Fed’s thinking, which is worth pointing out, is that it dropped the phrase in the statement saying that the pandemic is weighing on the economy. So, although it’s still cited as a risk, Powell and his colleagues officially ceased to see the pandemic as a constraint on economic activity. It means that, as I already wrote earlier in my reports, the US economy has returned to the pre- epidemic level or has shifted from the recovery to the expansion phase.

Implications for Gold

What does it all mean for the yellow metal? Well, the Fed triggered some panic selling in the gold market last week. Actually, on Thursday, there was the largest one-drop of 2021 in response to the more hawkish stance of the US central bank, as the chart below shows.

The bearish reaction is understandable, as the Fed’s readiness to reduce its asset purchases and end the policy of zero interest rates is fundamentally negative for the yellow metal . More hawkish FOMC implies higher real interest rates and a stronger dollar, the two most important drivers of gold prices. Furthermore, when the US central bank becomes more hawkish, it means that it’s more confident in the economy – and gold struggles when the economy is strong.

However, some analysts claim that the selloff was exaggerated . After all, the Fed still maintains that higher inflation is transitory; but transitory inflation doesn’t mix with earlier interest rate hikes. So, we will have either more lasting high inflation (but the Fed is slow to admit it), or the Fed doesn’t really want to increase its interest rates substantially. In both cases, gold should benefit, either from higher inflation and lower real interest rates, or from more dovish Fed than it’s currently perceived.

So, the bullish case for gold is not dead yet, but if the Fed really becomes more hawkish and determined to tighten its monetary policy (while high inflation turns out to be transitory), gold may struggle during the upcoming tightening cycle , unless it triggers some economic turmoil.

If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

Morgan Stanley Lifts TransUnion’s Target Price to $119 on Strong Data

Morgan Stanley raised their stock price forecast on TransUnion to $119 from $115, reiterating an ‘Overweight’ rating on the consumer credit reporting agency and said the company will outpace its 7-9% organic growth guidance for the year, following a deeper dive into the state of the company’s business lines.

Last month, Chicago, Illinois-based company updated its second-quarter 2021 earnings per share outlook to 0.890-0.920, well above the Wall Street consensus estimates of $0.790.

TransUnion forecasts revenue in the range of $744 million to $754 million, better than the market expectations of $691.63 million. The company also updated its full-year 2021 EPS outlooks to 3.450-3.580 per share.

“We see positive data points across non-mortgage financial services, emerging verticals, and consumer interactive that can drive upside to TRU’s 7-9% growth guidance for the year. We model 10% growth and are now 2% above cons on revenue and 3% above on adj. EBITDA,” noted Toni Kaplan, equity analyst at Morgan Stanley.

“We are increasingly bullish on the recovery of TRU’s non-mortgage financial services business given the positive outlook around consumer spending.”

TransUnion shares rose about 11% so far this year. The stock ended 1.4% higher at $109.99 on Monday.

Eight analysts who offered stock ratings for TransUnion in the last three months forecast the average price in 12 months at $119.29 with a high forecast of $125.00 and a low forecast of $110.00.

The average price target represents 8.46% from the last price of $109.99. Of those eight equity analysts, seven rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $165 under the bull scenario and $66 under the worst-case scenario.

TRU is a best in class credit bureau that has an ample runway for growth driven by innovation, expanding in attractive markets (e.g. healthcare, insurance), extending its consumer reach (e.g. more indirect partnerships), and leveraging its global operating model (expanding its solutions to additional markets),” Morgan Stanley’s Kaplan added.

“Management has demonstrated strong execution historically, showing its ability to grow above peers; TRU’s diversified verticals reduce risk and drive HSD growth in our model following a 2020 recession. The stock is trading at a 2x discount to Information Services peers, despite what we view as an intact growth runway in a post-COVID-19 environment.”

Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $120 from $115. Deutsche Bank lifted their price objective to $110 from $103 and gave the company a buy rating.

Truist upped their price objective to $120 from $100. Barclays boosted their target price to $120 from $110 and gave the stock an overweight rating.

Check out FX Empire’s earnings calendar

USD/INR: Rupee Extends Losses, Slips 24 Paise

The Indian rupee depreciated by nearly 24 paise against the U.S. dollar on Monday as the strong greenback and high oil prices continued to put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.326 against the U.S. currency – the highest since April 28 – up from Friday’s close of 74.1. The rupee has lost over 180 paise so far this month and weakened more than 100 paise in the last six trading sessions.

“…We believe the depreciation may continue in the short term and the US$INR pair should move higher towards 74.50 level,” noted research analyst at ICICI Direct.

“The US dollar/rupee pair formed a strong bull candle after holding its key support of 72 over two weeks, suggesting extended weakness for Rupee towards 75 levels. We expect the rupee to broadly consolidate in a range of 72-75 in the coming weeks. Only a decisive move below 72 would indicate extended gains for Rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.35% to 91.905. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

USD remains better bid post-Fed’s hawkish tilt and on Bullard’s hawkish comments that he sees a case for rates to rise next year. Though USD strength was broad based, its magnitude was not even, with G7s more hit than AXJs,” noted an analyst at Maybank.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark equity indices ended 230.01 points or 0.44% higher at 52,574.46, while the broader NSE Nifty advanced 63.15 points or 0.4% to 15,746.50.

Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 2,680.57 crore, as per provisional data.

On the other hand, global oil benchmark Brent futures rose 1.52% to $74.66 per barrel.

Fed’s Bullard Looks to a Bond-Buying Taper Not on ‘Automatic Pilot’

“In the 2013-2014 taper we went on automatic pilot and didn’t do much,” St. Louis Fed President James Bullard said in an interview on CNBC.

“This time around, I mean look at this data,” he said. “Look at how outsized all these numbers are and how volatile everything has been. I think we’re going to have to be more state-contigent than we have been in the past.”

The Fed currently holds nearly $7.5 trillion of Treasuries and mortgage-backed securities (MBS) within its $8.1 trillion balance sheet and is adding to those holdings at a rate of $80 billion and $40 billion, respectively, each month as part of its extraordinary measures to support the economy during the pandemic.

At a two-day policy meeting this week, Fed officials opened a dialogue about when and how to slow – or taper – those purchases as the economy recovers and inflation runs above the central bank’s 2% target.

Bullard, who also told CNBC that he was among seven Fed policymakers to predict a first rate hike in 2022, is not only eyeing a less steady-as-it-goes approach to the taper this time around. He said he might favor also a more rapid reduction in MBS purchases in the face of a housing boom that could evolve into a “threatening housing bubble.”

“I’m leaning a little bit toward the idea that maybe we don’t need to be in mortgage-backed securities with a booming housing market and even a threatening housing bubble here, according to some people,” he said, echoing concerns raised by some other Fed officials, such as Dallas Fed President Robert Kaplan. “So we don’t want to get back in the housing bubble game. That caused us a lot of distress in the 2000s.”

“Some people argue that there’s not much difference between MBS and Treasuries anyway, so there’s no reason to go one way or the other,” Bullard said. “But I would be a little bit concerned about feeding into the housing froth that seems to be developing.”

‘READY TO MAKE ADJUSTMENTS’

Bullard, who becomes a voting member of the policy-setting Federal Open Market Committee next year, predicted a “healthy debate” in coming meetings as officials devise and announce their plan. Should the taper play out as Bullard described, it would mark a notable departure from the Fed’s script last time.

Then, after formally announcing its plan at its December 2013, meeting, the central bank cut its then-monthly purchases of $45 billion of Treasuries and $40 billion of MBS by $5 billion each at each ensuing meeting, wrapping up the wind-down by the end of October 2014. While it said the reductions were not on a pre-set course, it never once deviated from that path.

“In 2014, we really didn’t have to exercise that option, but this is a situation where we might have to exercise the option,” Bullard said. “You don’t really know where inflation’s going to go here, even the economy as a whole.”

Moreover, the rest of the world’s economies in 2022 are likely to follow the United States in their emergence from the global recession triggered by the coronavirus pandemic, “possibly booming the way the U.S. is today,” he said.

“We’ll see if all that develops. But I think we have to be ready to make adjustments as necessary as we go along this path.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Dan Burns; Editing by Paul Simao)

 

Gold: The Fed Wreaked Havoc on the Precious Metals

However, we should stay alert to any possible changes, as no market moves in a straight line. Tread carefully.

On a side note, while I didn’t check it myself (well, it’s impossible to read every article out there), based on the correspondence I’m receiving, it appears I’ve been the only one of the more popular authors to be actually bearish on gold before the start of this week. Please keep that in mind, along with me saying that yesterday’s decline is just the beginning, even though a short-term correction might start soon. Having that in mind, let’s discuss what the Fed did (and what it didn’t do) in greater detail.

Look What You Did

With the U.S. Federal Reserve’s (FED) reverse-repo nightmare frightening the liquidity out of the system, I highlighted on Jun. 17 that the FED raised the interest rate on excess reserves (IOER) from 0.10% to 0.15%.

I wrote:

The FED hopes that by offering a higher interest rate that it will deter counterparties from participating in the reverse repo transactions. However, whether it will or whether it won’t is not important. The headline is that the FED is draining liquidity from the system and increasing the IOER is another sign that the U.S. federal funds rate could soon seek higher ground.

Please see below:

To explain, the red line above tracks the U.S. federal funds rate, while the green line above tracks the IOER. If you analyze the behavior, you can see that the two have a rather close connection. And while we don’t expect the FED to raise interest rates anytime soon, officials’ words, actions and the macroeconomic data signal that the taper is likely coming in September.

And in an ironic twist, while the question of whether it will or whether it won’t seemed reasonable at the time, the tsunami of reverse repurchase agreements on Jun. 17 signal that 0.15% just isn’t going to cut it. Case in point: while the FED hoped that the five-basis-point olive branch would calm institutions’ nerves, a record $756 billion in excess liquidly was shipped to the FED on Jun. 17 . For context, it was nearly $235 billion more than the daily amount recorded on Jun. 16.

Please see below:

To explain the significance, I wrote previously:

A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.

The green line above tracks the daily reverse repo transactions executed by the FED, while the red line above tracks the U.S. federal funds rate. Moreover, notice what happened the last time reverse repos moved above 400 billion? If you focus your attention on the red line, you can see that after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. Thus, with current inflation dwarfing 2015 levels and U.S. banks practically throwing cash at the FED, is this time really different?

Furthermore, I noted on Jun. 17 that the FED’s latest ‘dot plot’ was a hawkish shift that market participants were not expecting.

I wrote:

The perceived probability of a rate hike by the end of 2022 sunk to a 2021 low on Jun. 12. However, after the FED’s material about-face on Jun. 16, I’m sure these positions have been recalibrated.

Please see below:

And as if the chart above had been inverted, the perceived probability of a rate hike by the end of 2022 has now surged to more than 90%.

The Death Toll of June 17th

In addition, while I’ve been warning for months that the bond market’s fury would eventually upend the PMs, not only has the FED’s inflationary misstep rattled the financial markets, but the U.S. 30-year fixed-rate mortgage (FRM) jumped to 3.25% on Jun. 17.

Please see below:

Source: Mortgage News Daily

Furthermore, please read what Matthew Graham, COO of Mortgage News Daily, had to say:

“Markets were somewhat surprised by the Fed’s rate hike outlook. Granted, the Fed Funds Rate (the thing the Fed would actually be hiking) doesn’t control mortgage rates, but the outlook speaks to how quickly the Fed would need to dial back its bond buying programs (aka “tapering”). Those programs definitely help keep rates low. The sooner the Fed begins tapering, the sooner mortgage rates will see some upward pressure .”

To that point, with tapering prophecies officially morphing from the minority into the consensus, the PMs weren’t the only commodities sent to slaughter on Jun. 17. For example, the S&P Goldman Sachs Commodity Index (S&P GSCI) plunged by 2.37% as the inflationary unwind spread. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals.

Exacerbating the selling pressure, China’s National Food and Strategic Reserves Administration announced on Jun. 17 that it would release its copper, aluminum and zinc supplies “in the near future” in a bid to contain the inflationary surge that’s plaguing the region. As a result, if the psychological forces that led to the surge in cost-push inflation come undone, the USD Index could move from the outhouse to the penthouse.

To explain, I wrote on Apr. 27:

Why is the behavior of the S&P GSCI so important? Well, if you analyze the chart below, you can see that the S&P GSCI’s pain is often the USD Index’s gain.

To explain, the red line above tracks the USD Index, while the green line above tracks the inverted S&P GSCI. For context, inverted means that the S&P GSCI’s scale is flipped upside down and that a rising green line represents a falling S&P GSCI, while a falling green line represents a rising S&P GSCI. More importantly, though, since 2010, it’s been a near splitting image.

Inflation Is Still There

In the meantime, though, inflationary pressures are far from contained. And while the S&P GSCI’s plight would be a boon for the USD Index, the greenback still has plenty of other bullets in its chamber. Case in point: with the FED poised to taper in September and investors underpricing the relative outperformance of the U.S. economy, VANDA Research’s latest FX Outlook signals that over-optimism abroad could lead to a material re-rating over the summer.

Please see below:

To explain, the chart on the right depicts investors’ expectations of economic strength across various regions. If you analyze the second (CAD) and the third (GBP) bars from the right, you can see that positioning is more optimistic than the economic growth that’s likely to materialize. Conversely, if you analyze the first bar (USD) from the left, you can see that positioning is more pessimistic than the economic growth that’s likely to materialize. As a result, with U.S. GDP growth poised to outperform the U.K., Canada, and the Eurozone, an upward re-rating of the USD Index could intensify the PMs selling pressure over the medium term.

On top of that, while the inflation story is far from over (and will pressure the FED to taper in September), the Philadelphia FED released its Manufacturing Business Outlook Survey on Jun. 17. And while manufacturing activity dipped in June, “the diffusion index for future general activity increased 17 points from its May reading, reaching 69.2, its highest level in nearly 30 years .”

In addition, “the employment index increased 11 points, recovering its losses from last month,” and “the future employment index rose 2 points … [as] over 59 percent of the firms expect to increase employment in their manufacturing plants over the next six months, compared with only 5% that anticipates employment declines.” For context, employment is extremely important because a strengthening U.S. labor market will likely put the final nail in QE’s coffin.

But saving the best for last:

“The prices paid diffusion index rose for the second consecutive month, 4 points to 80.7, its highest reading since June 1979 . The percentage of firms reporting increases in input prices (82 percent) was higher than the percentage reporting decreases (1 percent). The current prices received index rose for the fourth consecutive month, moving up 9 points to 49.7, its highest reading since October 1980 .”

Please see below:

Source: Philadelphia FED

Investment Clock Is Ticking

Also, signaling that QE is living on borrowed time, Bank of America’s ‘Investment Clock’ is ticking toward a bear flattener in the second half of 2021. For context, the term implies that short-term interest rates will rise at a faster pace than long-term interest rates and result in a ‘flattening’ of the U.S. yield curve.

Please see below:

To explain, the circular reference above depicts the appropriate positioning during various stages of the economic cycle. If you focus your attention on the red box, you can see that BofA forecasts higher interest rates and lower earnings per share (EPS) for S&P 500 companies during the back half of the year.

As further evidence, not only is the FED’s faucet likely to creak in the coming months, but fiscal stimulus may be nearing the dry season as well.

Please see below:

To explain, the blue bars above track the U.S. budget deficit as a percentage of the GDP. If you analyze the red circle on the right side of the chart, you can see that coronavirus-induced spending was only superseded by World War Two. Moreover, with the law of gravity implying that ‘what goes up must come down,’ the forthcoming infrastructure package could be investors’ final fiscal withdrawal.

The Housing Market

Last but not least, while the S&P 500 has remained relatively upbeat in recent days, weakness in the U.S. housing market could shift the narrative over the medium term.

Please see below:

To explain, the red line above tracks the S&P 500, while the green line above tracks U.S. private building permits (released on Jun. 16). If you analyze the arrows, you can see that the former nearly always rolls over in advance of the latter . For context, the S&P 500 initially peaked before building permits in 2018 and alongside in 2015. However, in 2018, when the S&P 500 recovered and continued its ascent – while building permits did not – the U.S. equity benchmark suffered a roughly 20% drawdown. Thus, if you analyze the right side of the chart, you can see that building permits peaked in January and have declined significantly. And if history is any indication, the S&P 500 will eventually follow suit.

In conclusion, the PMs imploded on Jun. 17, as taper trepidation and the USD Index’s sharp re-rating dropped the guillotine on the metals. And with the FED’s latest ‘dot plot’ akin to bullet holes in the PMs, the walking wounded is still far from a recovery. With inflation surging and the FED likely to become even more hawkish in the coming months, the cycle has materially shifted from the goldilocks environment that the metals once enjoyed. And with the two-day price action likely the opening act of a much larger play, the PMs could be waiting months for another round of applause.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

USD/INR: Rupee Snaps Eight-Day Losing Run

The Indian rupee snapped its eight-day losing streak on Friday, appreciating about 36 paise against the U.S. dollar, largely driven by stronger Asian currencies and lower oil prices.

The USD/INR fell to an intraday low of 73.798 against the U.S. currency from Thursday’s close of 74.162. The rupee has lost nearly 129 paise so far this month and weakened about 79 paise on a weekly basis.

“The Rupee had opened weak and weakened further through the session. Stops got triggered above 73.85, resulting in a brisk move to 74.10. Even post OTC close, USD/INR got bid up as offshore positioned for further Dollar strength,” noted analysts at IFA Global.

“Considering that recent such moves have been short-lived, we expect volatility dampening to happen quickly. We, therefore, do not see a trending move higher in USD/INR at this point. The USDINR pair is expected to trade with a neutral to bullish bias for the day.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.42% to 92.27. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

DXY has seen a classic short squeeze – the trigger being that 7 of 18 FOMC members felt that a first-rate hike could come in 2022. Interestingly, the response has been felt harder in FX than US Treasury markets, where the search for carry still sees strong demand at the long end of the curve. You would say that the chances of a bond tantrum are less, but that movements at the shorter end of the US yield curve are a dollar positive – especially against the low yielders,” noted analysts at ING.

“The US data calendar is light in the week ahead, but there are several Federal Reserve speakers every day. The highlight may be Fed Chair Powell’s testimony to Congress on Tuesday. Let’s see whether the Fed is prepared to adopt any new language on tapering. Were views to coalesce around tapering actually starting in September – not December – the dollar could rally further.”

The benchmark equity indices also snapped a two-day losing session, closing 21.12 points or 0.04 percent higher at 52,344.45, while the broader NSE Nifty fell 8.05 points or 0.05 percent to 15,683.35.

On the other hand, global oil benchmark Brent futures fell 0.6% to $72.61 per barrel. However, foreign institutional investors were net sellers in the capital market on Thursday as they offloaded shares worth Rs 879.73 crore, as per provisional data.

BOJ to Launch New Scheme for Fighting Climate Change, Keeps Policy Steady

The BOJ also maintained its massive monetary stimulus to support the country’s economic recovery and extended a deadline for asset-buying and loan programmes introduced last year to channel funds to pandemic-hit firms.

Japan’s central bank said it expects to launch the climate change scheme by the end of this year, and will release a preliminary outline of its plan at its next policy-setting meeting in July.

“Climate change issues could exert an extremely large impact on economic activity, prices and financial conditions from a medium- to long-term perspective,” the BOJ said in a statement.

“Supporting private sector efforts from a central bank’s standpoint will contribute to stabilising the economy in the long run,” it said.

Under the scheme, the central bank said it will provide funds to financial institutions that increase loans and investment for activities aimed at combatting climate change.

While details of the new scheme have yet to be announced, the BOJ said it will be modelled after a similar programme that offers cheap loans to financial institutions that boost lending in areas considered to be growth industries.

After the two-day meeting, the BOJ also kept its target for short-term interest rates at -0.1% and for long-term yields around 0%, as widely expected, and extended by six months the September deadline for its asset-buying and loan programmes.

Japan’s economy shrank an annualised 3.9% in the first quarter and is seen making only a modest rebound, if any, in the current quarter as anti-virus measures weigh on consumption.

Core consumer prices in May rose 0.1% from a year earlier, marking the first year-on-year increase since March 2020 but remaining far distant from the BOJ’s 2% goal.

BOJ officials have recently signalled their readiness to put more emphasis on addressing economic and financial challenges posed by climate change.

“The BOJ probably wanted to move in tandem with the government, which recently flagged steps to promote green in its policy blueprint,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“The BOJ is also jumping on the band-wagon of the rising tide among central banks towards linking monetary policy to climate change,” she said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Leussink; Editing by Kim Coghill, Jacqueline Wong and Ana Nicolaci da Costa)

 

Yellen Tells Mexican Counterpart G20 Countries Should Back Global Minimum Tax

Yellen, whose proposal for a global minimum tax of at least 15% has won the backing of the Group of Seven advanced economies, is now urging G20 countries – including Mexico and China – to support the plan when they meet in Venice in July.

Yellen told U.S. lawmakers that Washington would not agree to any type of special treatment for China or other countries that would weaken a global minimum tax regime.

G7 finance officials on June 5 agreed to support a minimum corporate tax rate of at least 15%, a move endorsed by G7 leaders on Sunday.

In her discussion with Herrera, Yellen also affirmed the Treasury’s commitment to deepen cooperation with Mexico on illicit finance and to work together to address root causes of migration from northern Central America, Treasury said.

Herrera, who met with Yellen in Washington, said the two officials discussed the possible approval and implementation of the global minimum tax rate, but gave no details.

He also said they discussed economic recovery in the region, including in Central America.

Treasury said Yellen reviewed ongoing efforts in both countries to address the COVID-19 pandemic and to support a robust economic recovery.

The Federal Reserve on Thursday forecast the U.S. economy would grow 7% in 2021, which should help the Mexican economy given extensive trade ties between the two neighboring countries.

Herrera also met with International Monetary Fund Managing Director Kristalina Georgieva for what she described in a tweet as a “very productive in-person meeting on the global and regional economic recovery.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Andrea Shalal; Editing by Jacqueline Wong & Shri Navaratnam)

Dollar Surges to Two-Month High on Fed Rate-Hike Projection

On Wednesday, Fed officials projected an accelerated timetable for rate increases, began talks on how to end emergency bond-buying, and said the COVID-19 pandemic was no longer a core constraint on U.S. commerce.

A majority of 11 Fed officials penciled in at least two quarter-point rate increases for 2023, adding they would keep policy supportive for now to encourage a labor market recovery.

The dollar index, which tracks the greenback against six major currencies, was up 0.53% at 91.892, its highest since mid April. On Wednesday, the dollar surged nearly 1%, its largest daily percentage gain since March 2020.

“Coming into the Fed meeting we felt there was a risk of a more hawkish outcome which could drive some USD strength if it came to happen,” said Chuck Tomes, associate portfolio manager at Manulife Asset Management in Boston.

“Because of that, we did put some protection on in case of that happening,” he said.

Still, Tomes said he sees the dollar rangebound to weaker over the longer term.

The Fed’s new projection prompted some, including Goldman Sachs and Deutsche Bank, to abandon calls to short the dollar.

“We continue to forecast broad U.S. Dollar weakness, driven by the currency’s high valuation and a broadening global economic recovery,” analysts at Goldman Sachs wrote in a note on Wednesday.

“However, more hawkish Fed expectations and the ongoing tapering debate look likely to be a headwind to Dollar shorts over the near term,” said the analysts, closing their recommendation to go long the euro against the dollar.

The Australian dollar – seen as a proxy for risk appetite – was down 0.72% at 0.75545, its lowest since April 1..

Australia also had upbeat data, with job creation beating expectations in May and unemployment diving to pre-pandemic lows.

The dollar was 0.77% higher against the Norwegian crown after Norway’s central bank kept its key interest rate unchanged as expected, but said an increase was likely in September and steepened its trajectory of subsequent rate rises as the economy recovers from the effects of COVID-19.

The stronger dollar sent sterling below $1.40 to a fresh 5-week low.

Elsewhere, bitcoin was trading at $37,769.48, little changed on the day.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Elizabeth Howcroft; editing by John Stonestreet, Robert Birsel, Raissa Kasolowsky and David Gregorio)

 

Analysis: As Fed Wakes Sleeping Dollar, Jolted Bears May Bolster Gains

The dollar was on track for its biggest two-day percentage increase against a basket of major currencies in 15 months on Thursday and stands at its highest level since mid-April, a day after the central bank shifted its first projected rate increase into 2023 in the face of surging inflation.

Betting against the dollar has been a popular trade for months, as the Fed’s insistence that it would maintain its ultra-dovish stance despite rising inflation drove the currency to a near 3-year low earlier this year.

The slightly hawkish shift in Wednesday’s statement appears to be changing that calculus: the prospect of a sooner-than-expected rise in U.S. rates boosts the dollar’s attractiveness to yield-seeking investors over currencies such as the euro and yen. Both Goldman Sachs and Deutsche Bank, for instance, after the Fed meeting recommended investors cut their bets on the euro rising against the buck.

“I think FX markets have finally awoken to the idea of earlier normalization from the Fed,” said Simon Harvey, senior FX market analyst at Monex Europe.

Large bets against the U.S. currency may accelerate the recent move if the threat of more gains pushes investors to reverse their bearish positions. Net bets against the dollar in futures markets stood at nearly $18 billion last week, a three-month high, according to data from the CFTC.

“In the coming weeks and months, the short-dollar thesis that has been so dominant and popular for much of the past year will be severely tested,” said Stephen Jen, portfolio manager at hedge fund Eurizon SLJ.

Momtchil Pojarliev, head of currencies at BNP Asset Management in New York, bought the dollar against the Japanese yen after the Fed meeting.

“The Fed has been patient, but we all know the Fed is going (to turn hawkish) at some point,” he said. “I didn’t think that it was going to be now.”

Because of the dollar’s central position in the global financial system, its fluctuations tend to ripple through a wide range of assets.

A stronger dollar tends to weigh on the balance sheets of U.S. multinationals, making it less favorable for them to change foreign earnings back into their home currency.

A rising greenback could also help tame a blistering rally in commodity prices that has helped boost inflation this year, as many raw materials are priced in dollars and become less affordable to foreign investors when the buck appreciates.

“With our view of rising rates, risky assets and equities will have difficulties,” said Kaspar Hense, a portfolio manager at Bluebay Asset Management, which oversees $60 billion. Hense went short the euro after Wednesday’s Fed meeting.

Some market participants, however, are maintaining their bearish views on the dollar, noting that the Fed’s easy money policies, which include the purchase of $120 billion a month in Treasuries, remain in effect. Other central banks are likely to follow the Fed’s lead in slowly normalizing monetary policy, potentially narrowing the gap in rates between the U.S. and other economies.

Goldman Sachs believes a global recovery will weaken the dollar over the longer term, while a report published by Societe Generale on Thursday showed a year-end price target of $1.27 for the euro, from $1.19 on Thursday.

“Clearly there has been technical, fundamental damage to the bearish dollar story, but I would like to see how the dust settles before determining if the dollar bear story is behind us,” said Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management.

“Now a lot of it is going to hinge on… what do other G10 and emerging market central banks do in response.”

Upadhyaya reduced his short dollar position heading into the Fed meeting but believes the currency will eventually head lower. Harvey, of Monex Europe, wants to see whether the next few weeks’ data will bolster the case for a stronger-than- expected recovery.

Others, however, think there could be room for more dollar gains.

Shorting the dollar “has been a popular trade for both discretionary and systematic managers,” said David Gorton, chief investment officer at hedge fund DG Partners. The “hawkish surprise from the Fed has perhaps exposed just how extended some of those short positions were.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saqib Iqbal Ahmed in New York and Saikat Chatterjee in London; Additional reporting by Maiya Keidan and Gertrude Chavez-Dreyfuss; Editing by Ira Iosebashvili and Dan Grebler)

 

USD/INR: Rupee Drops Most in Over Six Weeks, Breaches 74-Mark

The Indian rupee declined to its lowest in over six weeks on Thursday, depreciating by 97 paise against the U.S. dollar for the eighth straight day as the strong greenback and high oil prices put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.239 – hit its weakest since May 3 – against the U.S. currency from Wednesday’s close of 73.27. The rupee has lost nearly 178 paise so far this month and weakened 100 paise in the four trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.62% to 91.696. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023. The U.S. benchmark 10-year Treasury yield jumped 7.5 basis points.

Other than the FOMC monetary policy statement, retail sales and industrial production data would be critical for investors and a better-than-expected release could support the mighty greenback.

The benchmark equity indices also ended lower for the second consecutive day, closing down 178.65 points or 0.34% lower at 52,323.33, while the broader NSE Nifty fell 76.15 points or 0.48% to 15,691.40.

On the other hand, global oil benchmark Brent futures fell 0.78% to $73.83 per barrel. Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth Rs 870.29 crore, as per provisional data.

“Sentiments remained frail as the recent recovery in the U.S., the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike,” noted Manish Pargi, currency analyst at Angel Broking.

“Bets on the shift in the monetary stance by the U.S. Central Bank gave strengthen to the U.S. currency. Strong demand for the dollar by importers and banks amid soaring crude oil prices undermined the domestic currency.”

BOJ May Start Debate on Retreat From Stimulus in 2023

Such a move would put the BOJ in line with other central banks gradually eyeing an exit from crisis-mode policies. The U.S. Federal Reserve unnerved investors on Wednesday with indications it could begin raising rates in 2023.

Discussions on abandoning negative rates would only emerge if Japan’s economy returns to post-pandemic levels and inflation perks up near 1%, said Maeda, who as BOJ executive director oversaw its policy drafting until May 2020.

And if the central bank raises rates, it will only move the short-term rate target to around 0.0%-0.5% in what will be a modest reversal of crisis-mode policies rather than the start of a full-fledged rate-hike cycle.

“If the BOJ is lucky, debate (on raising rates) could begin from around 2023,” Maeda told Reuters in an interview.

“But this won’t be policy normalisation. It will merely be a shift away from an extraordinary stimulus towards a more sustainable monetary easing,” he said.

Any such moves would coincide with the end of Governor Haruhiko Kuroda’s term at the bank in April 2023, and would push it further from his policies aimed at propping up inflation with huge stimulus that kicked off with a “bazooka” asset-buying programme in 2013.

After Kuroda’s bazooka failed to fire up inflation to his 2% target, the BOJ shifted to yield curve control (YCC) in 2016 under which it sets a -0.1% target for short-term rates and caps 10-year bond yields around 0%.

Facing criticism for hurting bank profits with negative rates, the BOJ was forced in March to conduct a review of its policy tools to deal with the accumulating side-effects of prolonged easing.

Maeda, currently head of think tank Chibagin Research Institute, said the March review, which created a scheme to compensate banks for the hit from years of ultra-low rates, had helped extend the lifespan of YCC.

“With the review, the BOJ probably laid the groundwork for a post-Kuroda monetary policy,” he said. “YCC has been made sustainable for another three to five years.”

(Reporting by Leika Kihara; Additional reporting by Takahiko Wadao; Editing by Chang-Ran Kim and Richard Pullin)

 

USD/INR: Rupee Falls for Seventh Straight Session Ahead of Fed Decision

The Indian rupee dipped against the U.S. dollar for the seventh straight day on Wednesday ahead of the conclusion to the Federal Reserve’s monetary policy decision.

The USD/INR rose to an intraday high of 73.3890 – hit its weakest since May 14 – against the U.S. currency from Tuesday’s close of 73.35. The rupee has lost 88 paise so far this month and weakened 60 paise in the seven trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.02% to 90.515. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year in May– the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

“Sentiments remained frail as the recent recovery in the US, the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike. Bets on shift in the monetary stance by the US Central Bank gave strengthen to the US currency. Strong demand for the dollar by importers and banks amid soaring Crude Oil prices undermined the domestic currency,” noted Manish Pargi, currency analyst at Angel Broking.

The benchmark BSE Sensex index ended down 271.07 points or 0.51% lower at 52,501.98, while the broader NSE Nifty fell 101.70 points or 0.64% to 15,767.55.

On the other hand, global oil benchmark Brent futures rose 0.27% to $74.19 per barrel. However, foreign institutional investors were net buyers in the capital market on Tuesday as they offloaded shares worth Rs 633.69 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise about 1% to INR 74.00 against the U.S. dollar rate over the coming year.

U.S. Corporate Bond Yield Spreads Unlikely to Bet ‘Meaningfully’ Tighter – Amundi

“Spreads can go tighter, though not meaningfully tighter,” Ken Monaghan, co-head of high yield at Amundi U.S. told the Reuters Global Markets Forum on Tuesday.

The additional yield, or the yield spread, that investors demand for holding riskier corporate bonds over U.S. Treasuries fell to near its tightest level since the Great Recession due to investors buying higher yielding assets.

Amundi’s Monaghan pointed to BB-rated bonds comprising a greater share of the high yield market as a primary reason why spreads are unlikely to tighten significantly.

He said the bonds are now nearly 55% of the market compared to about 45% a decade ago and pointed to demand by “crossover investors” seeking returns higher than those available in investment grade corporate credit and U.S. government debt markets.

“If nominal rates were to move meaningfully higher on an eventual Federal Reserve move, would those … who have ‘vacationed’ in high yield return to their home markets? Probably some would,” Monaghan said.

The Fed began unwinding its corporate bond portfolio last week, with markets focused on when it will taper its hefty asset buying program.

Monaghan said the Fed’s moves have had a less dramatic impact on high yield debt, with even a hawkish tone from the central bank not pushing up spreads significantly.

While many corporate defaults were expected due to the COVID-19 pandemic, Monaghan said default levels remained below expectations, thanks mainly to the Fed’s backstop and numerous “rescue” programs.

Despite current “risk-on” sentiment, Amundi’s Monaghan said aggressive borrowing seen in previous cycles has not materialized, with most companies focused on refinancing existing debt.

(Reporting by Lisa Pauline Mattackal and Aaron Saldanha in Bengaluru; Editing by Arun Koyyur)

 

USD/INR: Rupee Extends Losses for Sixth Straight Session, Hits One-Month Low

The Indian rupee fell to a one-month low against the U.S. dollar on Tuesday, depreciating for the sixth straight day as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR to an intraday high of 73.3730 – hit its weakest since May 14 – against the U.S. currency from the Monday’s close of 73.18. The rupee has lost 86 paise so far this month and weakened 51 paise in the six trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.07% to 90.587. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index ended up 221.52 points, or 0.42% higher at 52,773.05, while the broader NSE Nifty advanced 57.40 points or 0.36% to close at 15,869.25.

On the other hand, global oil benchmark Brent futures rose 0.43% to $73.17 per barrel. However, foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 503.51 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two week. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

Indian Rupee is expected to trade with negative bias amid strong dollar, surge in crude oil prices and disappointing macroeconomic data. India CPI data showed inflation accelerated by 6.3% in May 2021 compared to 4.23% in April 2021. Inflation breached the Reserve Bank of India’s target range of 2-6% for first time in 5 months. Further, market participants fear that the second wave of covid-19 infection in India has dampened the expectation of quick economic recovery,” noted analysts at Sharekhan BNP Paribas.

“Furthermore, traders will remain cautious ahead of US FOMC meeting outcome and economic projections. However, sharp fall may be prevented as number of COVID-19 cases in India continued to decline. India reported daily new covid-19 cases below 1 lakh for 7th consecutive day. USDINR spot expected to trade in a range between 72.90 on lower side to 73.40 on higher side with an upward trend.”

Australia’s Central Bank Says ‘Premature’ to End Bond Buying Programme

Minutes of the Reserve Bank of Australia’s (RBA) June policy meeting showed members discussed tapering and even ceasing its massive quantitative easing campaign when the current A$100 billion ($77 billion) round expires in September.

This is the first time the Reserve Bank of Australia (RBA) laid out how it might revise its bond buying campaign. A final decision is due at its meeting on July 6. Whatever the RBA decides about the bond purchase programme, analysts expect it to keep the policy cash rate at a record low 0.1% for a long time to come.

“Observing that the bond purchase programme had been one of the factors underpinning the accommodative conditions necessary for the economic recovery, members thought it would be premature to consider ceasing the programme,” minutes of its June policy meeting showed.

Other options discussed included a third round of A$100 billion bond purchases for six months, scaling back the amount bought and spreading purchases over a longer period.

Moving to an approach where the pace of the purchases is reviewed more frequently based on the flow of data and economic outlook was also discussed.

The RBA did not provide any indication of preference. Economists are divided on the approach the central bank might adopt with some predicting another A$100 billion round and others forecasting a flexible programme.

“Key considerations for the decision in July would be the progress made towards the Board’s goals for employment and inflation and the likely effect of different options on overall financial conditions,” the minutes showed.

The RBA has said it would also consider the fate of its three-year yield target on July 6, currently pegged at 0.1%. Analysts strongly believe the RBA will not extend the target beyond the April 2024 bond. The central bank did not give any indication on whether it agreed with the market.

Investors will watch communications out of the RBA in the weeks ahead, starting with a speech from Governor Philip Lowe on Thursday. Assistant Governor Luci Ellis speaks at a conference on June 23 followed by a panel participation by Lowe on June 30.

“If the Board wants to push back on market pricing and speculation in the run up to July 6…there will be ample opportunity to do so in the coming weeks,” said RBC economist Su-Lin Ong.

The Australian dollar was a touch softer at $0.7711 as the minutes were seen as dovish.

SUBDUED WAGE GROWTH

In explaining the need for easy monetary policy, the RBA has said wage growth will need to be “sustainably above 3%” to help achieve its inflation target of 2% to 3%.

Core inflation was currently at an all-time low of 1.2%. Wage growth is running at just 1.5%, compared with 2% in Europe and nearly 3% for the United States.

The RBA expects wage pressures to remain subdued until 2024, at the earliest, despite strong growth in employment. Leading indicators of labour demand, such as job vacancies, point to further solid increases in employment in coming months.

Still, firms facing labour shortages were offering non-wage incentives to attract and retain staff such as one-off bonuses and more flexible working arrangements, the RBA said citing its liaison programme with businesses.

Some firms were also opting to ration output because of labour shortages rather than pay higher wages to attract new workers.

The minutes highlight “the RBA’s ongoing dovish views around inflation and wages, which suggest the RBA is in no hurry to follow the RBNZ and BoC flagging higher rates in 2022,” said NAB economist Taylor Nugent referring to the New Zealand and Canadian central banks.

($1 = 1.2968 Australian dollars)

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Swati Pandey and Wayne Cole; Editing by Simon Cameron-Moore)

 

Stocks Waver as Investors Eye the Fed

The Dow Jones Industrial Average fell 248.82 points, or 0.72%, in midday trading. The S&P 500 lost 11.83 points, or 0.28%, while the Nasdaq Composite added 53.24 points, or 0.38%.

Yields on benchmark 10-year U.S. Treasuries rose slightly to 1.495%, after falling to a three-month low of 1.43% on Friday, a dip experts pegged to positioning and a watchful eye on the global pandemic.

“While it’s not entirely intuitive to us, we understand the move to be a combination of positioning, peak liquidity and renewed concerns about COVID as the U.K. pushes back its latest steps toward re-opening,” said Stephanie Roth, senior markets economist at JPMorgan Private Bank. “We are not surprised to see choppy markets ahead of Wednesday’s FOMC. Investors are wondering… whether the Fed will hint at tapering.”

That sentiment weighed on gold prices as well, as the precious metal slipped as much as 1.7%. Spot gold prices were down 0.66% by 1:26 p.m. EDT (1726 GMT) to $1,864.19 an ounce. U.S. gold futures dropped 0.7% to $1,865.10.

The recent uptick in inflation data heightens the stakes for the Fed’s upcoming policy-setting meeting, which will be followed by a news conference by Chairman Jerome Powell. Analysts said the central bank will have to tread a fine line, laying out its strategy for exiting an unprecedented era of pandemic-spurred accommodation without spooking investors.

“The Fed’s messaging this year will be critical; the Fed needs to convey its intention to wind down ultra-accommodative policy, but at the same time convey that it has no intention of abruptly tightening policy, a fine line that could easily be miscommunicated,” wealth management firm Glenmede cautioned in a client note.

The prospect of a return to economic normalcy put gas into oil prices, which hit their highest levels in more than two years. Brent rose 34 cents to $73.03 a barrel by 12:56 p.m. EDT (1656 GMT). Earlier in the session, it reached $73.64 a barrel, its highest since April 2019, boosted by the economic recovery and anticipated demand growth as vaccination campaigns accelerate.

U.S. West Texas Intermediate rose 27 cents to $71.18 a barrel. It hit a session high of $71.78 a barrel, its highest since October 2018. [O/R]

BITCOIN BUMP

In currencies, the U.S. dollar dipped slightly on Monday after logging its largest weekly change in over a month.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.058 point or 0.06%.

The yen stood little changed at 109.92 yen, while the British pound changed hands at $1.4108, near the lower end of its trading range over the past month.

Bitcoin has bounced back somewhat after Tesla Inc CEO Elon Musk tweeted that the electric carmaker could reopen the door to bitcoin transactions in the future. It was last bought at $40,140.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting Pete Schroeder in Washington. Editing by Jacqueline Wong, Alexander Smith, Chizu Nomiyama and Dan Grebler)

USD/INR Posts Longest Daily Losing Streak in Over Two Months

The Indian rupee depreciated against the U.S. dollar for the fifth straight day on Monday as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR rose to an intraday high of 73.2910 against the U.S. currency from Friday’s close of 73.24. The rupee has lost 49 paise in the last five trading sessions – its longest losing streak in more than two months.

“The Indian Rupee declined further amid dollar demand. USD/INR pair settled 0.55% higher at 73.24.  The US dollar/rupee pair formed an inside bar indicating breather for rupee near strong hurdle placed at 72 levels over past six months,” Dharmesh Shah, Head – Technical, ICICI direct

“We expect the rupee to take a breather around 72-mark and consolidate in 72- 74 band. Only a decisive move below 72 would indicate extended gains for the rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.12% to 90.45. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index up 76.77 points, or 0.15% higher at 52,551.53, while the broader NSE Nifty gained 12.50 points or 0.08% to close at 15,811.85.

On the other hand, global oil benchmark Brent futures rose 0.94% to $73.36 per barrel. Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 18.64 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

The domestic currency remained under pressure as the RBI slashed India’s growth projections down to 9.5 percent from the earlier evaluation of 10.5 due to the ongoing pandemic. Sentiments were further hampered after the World Bank axed India’s GDP projections to 8.3 percent for FY22, down from the earlier forecast of 10 percent,” noted currency analyst at Angel Broking.

“Steady increase in Oil prices, widening trade deficit and imports triggered inflation in India also added to the downside. However, bets on paced recovery in global economies and an accommodative stance by the US Federal Reserve limited the gains for the US Dollar. The Indian Rupee also found some support after the exports in the first week on June’21 stood at $7.71 billion, higher by 52.4 percent. The Indian Rupee might remain under pressure in the days ahead following the increase in demand for the Dollar in the global markets.”

All Eyes Turn To Fed As Inflation Runs Hot – What’s Next?

Last week, the Consumer Price Index, jumped a sizzling 5% in May from a year earlier – to its highest level since 2008. Meanwhile, core CPI rose 3.8% year over year, which is its sharpest increase since 1992.

The inflation reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the global financial crisis sent the U.S. spiralling into the worst recession since the Great Depression – and Oil prices skyrocketing to $150 a barrel.

The hot reading now positions, the Federal Reserve’s June meeting is the big event for markets in the week ahead.

So far this year, the Fed has remained amendment that inflation will run hotter than its traditional 2% goal for a longer period than estimated as the global economy reopens, but should be transitory. Focus now shifted to the Fed’s June 15-16 meeting for further clarity on policymakers’ view on rising inflation and monetary policy going forward.

One of the key indicators of rising inflation – is higher oil prices. On Monday, Oil prices rallied to a 32-month high – putting them firmly on course for their biggest quarterly advance since 2010.

Elsewhere, many other commodities ranging from Copper, Palladium, Iron Ore to Lumber prices surged past all-time record highs in recent weeks – And this could just be the beginning!

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.