On May 27, the Indian rupee rose by four paise, reaching 83.06 against the US dollar (Dh22.63). This rise mainly came from favorable trends in domestic stock markets, where major indices hit new records. Forex traders pointed out that the US dollar's weakness globally also helped the rupee gain ground. However, the increase was limited due to higher crude oil prices.
Rupee appreciates amid GDP watch
The trading day started at the interbank foreign exchange market, with the rupee opening at 83.08 per dollar. It then appreciated 83.06, marking a 4-paise increase from its closing value. On May 24, the rupee continued its upward trend for the fourth session.
All eyes will be on the Indian GDP growth rate for Q4 2023, which is scheduled for release on May 31. If the growth rate does not meet expectations, this could put downward pressure on the Indian rupee (INR) and limit the pair's potential to decline further.
Simultaneously, Asian stocks experienced a rally on May 27 as investors prepared for a series of upcoming inflation data releases. These releases could potentially lead to a rate cut in Europe as soon as next week and signal possible policy easing in the US in the coming months.
Global markets await inflation data
The dollar dipped slightly due to a rise in risk-taking. Despite this, it remained stable against other major currencies. Investors are waiting for important inflation data from major economies to understand global interest rates better.
In the early trading hours in Asia, currencies barely moved. This was partly due to holidays in the US and Britain, making the session quiet. Even so, the mood was positive as global shares held firm.
The euro saw a slight rise, trading at $1.0860. This happened despite some negative comments from European Central Bank (ECB) officials and data showing poor business sentiment in Germany for May.
Market watchers now look forward to German inflation data on May 29 and the broader eurozone inflation report on May 31. These reports could confirm the expected ECB rate cut next week and give insight into future monetary policy changes by the central bank.
Rodrigo Catril, a senior FX strategist at National Australia Bank (NAB), noted that the European Central Bank (ECB) will likely cut rates next week. He highlighted the importance of recent events and pointed out the lack of clear direction from ECB officials. Catril mentioned that inflation trends will be crucial in shaping future expectations.
Sterling stayed near its two-month high, trading at $1.2774. The New Zealand dollar also went up by almost 0.1%, hitting $0.6155, its highest since mid-March. The Australian dollar, on the other hand, made a small gain of 0.03%, trading at $0.6657. Important consumer price index data are expected on May 29.
The release of the US core PCE price index report on May 31 is highly anticipated. The report serves as the Federal Reserve's key gauge for inflation. Expectations are that the report will show little to no change from the previous month.
Recently, fluctuations in US interest rates have played a significant role in the movement of currencies. Mixed economic data has urged policymakers to take a cautious approach regarding the timing and extent of rate cuts this year.
Catril from NAB mentioned that the market expects a small change, in line with the expected Fed rate cut later this year. If the results are better than expected, it could raise U.S. yields and strengthen the dollar dollar index, which dropped slightly by 0.01%, making it 104.55 against other currencies. The yen was close to 157 per dollar, at 156.87 per dollar. This marked the yen's first monthly gain in 2024, likely due to interventions by Japanese authorities in late April and early May.
On May 31, Tokyo will release important inflation data, often seen as a predictor of the country's overall inflation trends. This information could provide insights into the Bank of Japan's (BOJ) plans for future rate hikes. On May 27, BOJ Governor Kazuo Ueda mentioned that the central bank will move cautiously when changing its inflation-target strategy. He highlighted that Japan faces significant challenges after a long period of loose monetary policies.