Weekly Forex Insights: Inflation data shows minimal change

This week’s inflation data presented a mixed outlook with little overall change. Consumer prices increased slightly more than expected, while producer prices came in lower than forecast. Although these trends point to a gradual easing of inflation, the pace of improvement seems to be slowing, and potential risks remain.

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This week’s inflation data offered a mixed picture, showing minimal change overall. While consumer prices rose slightly more than anticipated, producer prices fell below expectations. These indicators suggest a continued, though gradual, decline in inflation. However, progress appears to be slowing, with risks persisting.

On the currency front, the US Dollar Index strengthened for the second consecutive week, briefly surpassing the 103.00 mark. The EUR/USD pair remained in its third consecutive week of a downward trend, although it managed to recover from lows below 1.0900. Similarly, GBP/USD faced pressure, testing the key support level at 1.3000. Meanwhile, USD/JPY continued its upward trajectory, approaching the significant 150.00 threshold.

Looking ahead, upcoming economic indicators such as manufacturing indices, retail sales, and housing market data will be crucial in shaping market sentiment. The European Central Bank’s (ECB) upcoming interest rate decision and President Christine Lagarde’s press conference are also key events to monitor.

In India, the rupee breached the 84.00 level, hitting a fresh all-time low of 84.08 by the end of the week. This comes as the currency continues to be pressured by persistent foreign fund outflows from Indian equities and rising crude oil prices, currently at $78.92 per barrel, up from around $69 just weeks ago. Foreign portfolio investors (FPIs) have been significant sellers, with outflows reaching Rs 55,000 crore in the last nine days—roughly $1 billion per day.

China’s recent economic stimulus measures, including a 10-basis point rate cut and a reduction in the cash reserve ratio, have also attracted foreign investors, contributing to the rupee’s depreciation. The expected announcement of a 2 trillion yuan fiscal stimulus package by China could further influence global markets and currency movements.

Domestically, the Reserve Bank of India (RBI) held the repo rate steady at 6.5%, signaling a shift from its ‘withdrawal of accommodation’ stance to a more neutral outlook, potentially hinting at future rate cuts. However, India’s foreign exchange reserves fell by $3.71 billion to $701.18 billion, marking the first drop in eight weeks. On a positive note, Indian sovereign bonds will be included in FTSE Russell’s Emerging Markets Government Bond Index (EMGBI), following similar moves by JP Morgan and Bloomberg, potentially offering some support to the rupee.