Dollar weakens as euro recovers
Rupee tumbles after the Reserve Bank of India maintains status-quo on repo rates
The US dollar remained under pressure all through the week as the Euro extended its recovery. It was the Indian rupee that stole the show with heightened and unexpected volatility. The rupee tumbled below 74 last week after the Reserve Bank of India’s monetary policy outcome on Wednesday. The currency fell to a low of 74.94 and closed at 74.74, down 2.2 per cent for the week.
Policy outcome
The RBI on Wednesday last week left the policy repo rate unchanged at 4 per cent. The trigger for the volatility in rupee movement came from its announcement of bond purchases.
US Treasury yields surge on inflation expectation and stimulus
Currencies and equities remain stable
It was neither the currencies nor the equities but the US Treasury yields that drew the market’s attention in the past week.
The US 10-Year (Yr) Treasury yield rose sharply last week especially at the far-end (10Yr and 30Yr). The 10Yr yield surged 13 basis points (bps) and closed the week at 1.34 per cent. The 30Yr yield closed at 2.13 per cent, up 12 bps for the week.
Rising inflation expectations and hopes for a bigger stimulus in the US led the yields higher. Rising yields took the sheen off gold. Currencies and equities remained relatively stable last week.
Dollar to consolidate before resuming the broader downtrend
A sideways move of 90-91.50 is possible in the near term
The dollar remained weak all through last week. The US Dollar Index failed to sustain above 91 and fell to a low of 90.25. The euro rising past the key near-term resistance level of 1.21 dragged the Dollar Index lower last week.
On the equities front, the Dow Jones Industrial Average continues to hover at higher levels on the back of the US stimulus support. However, the index seems to lack momentum to further move up further from current levels in the absence any fresh triggers. Overall, a sideways consolidation looks like a possibility before the broader trends resumes in all the asset classes.