FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 02/05/2025

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Currency Map:

Currency Pairs	Apr CLOSE	March CLOSE	% change
USD/INR	84.54	85.54	-1.16
EUR/INR	96.73	92.32	4.77
GBP/INR	113.87	110.74	2.82
JPY/INR	59.62	56.75	5.05

Brent Crude closed at USD 61 VS previous month close of USD 74.50. Gold closed at USD 3288 in April. Nifty closed at 24334 vs prior month close of 23519. 10 Year G-SEC Yield is now at 6.45%.

Major developments: USDINR traded in the 84.47-86.76 range in April, and Rupee gained 1.16% against USD m/m. EUR climbed 4.77% m/m and GBP climbed 2.82% m/m against Rupee.

Indian benchmark Equity indices climbed 3.46% m/m. 10 Year G-SEC Yield closed at 6.45%.

1-year fwd premia is at 2.20% p.a.

FX reserves stood at USD 688.13 bn, as on Apr 25th. Reserves climbed US D 1.98 bn w/w.

In Apr, FII’S have  bought Rs 6363 Cr of Indian Equities and sold Rs 13974  cr of debt.

USD plunged against Rupee to 83.78 in early morning on Friday. There seemed to be some intervention by RBI below 84. USDINR volatility is on the upswing. Though Equity related FPI continued for 12 th sessions, it was balanced by debt outflows. Rupee and Equity markets have shrugged off fears of Indo-Pak tensions as market expects contained response which may not lead to bigger conflict.

Rupee gained 1.05% in April and closed at 84.54 as against March close of 85.42. Rupee gains could be attributed to decline in USD index, which fell 4.5% in April. Exporter hedging, fall in Crude prices and strong foreign inflows also helped Rupee gain. RBI did not intervene to absorb USD inflows, except on Friday at below 84 levels.. Likely US-India trade deal also added to Rupee’s positive sentiment in last few days. PE inflows also came on Friday.

On a technical basis, USDINR faces resistances at 85 and later at 85.50. Supports are at 83.75/83.30.

However, correction in USD Index and escalation in Indo-Pak tensions could still trigger some fall to 85.50/86 levels. Expect 83.75-85.25 levels for USDINR in May. Indian Equity index Nifty climbed 3.5% m/m and 10 Year yield dropped to 6.45%. 1 Year fwd premia is at 2.20%.

GST Collections rose 12.6% to 2.37 lac Cr, highest ever collection. In April 2024, it was at 2.10 lac Cr.

Hedging advise: Exports can be hedged on rally till 85.50 is not breached on the upside. Expect 83.75/83.30 to support USDINR pair on the downside.

Global developments:  US Economic data was contradictory . While GDP contracted in Q1, employment data was stronger than expected. USD corrected higher and US Equities also rallied on improvement in US-China trade issues, with China easing tariff on nearly 25% of imports from US. There seems to be informal discussions to find a solution to trade issues.

The US Dollar recovery continues to be driven by tariff developments at this stage with Federal Reserve interest rate expectations taking a backfoot. JPY declined as BOJ’S economic assessment implies that rates will be on hold.

After the jobs data, the U.S. rate futures market lowered its expectations for a June rate cut by the Fed, reducing the probability to 35.6% from about 58% on Thursday. Overall, the market now predicts rate cuts totaling 80 basis points (bps), or roughly three 25-bps cuts, compared to the 100 bps of cuts expected earlier this week.

Fed is expected to maintain status quo in this week’s upcoming meeting. Fed Chair Jay Powell emphasized the need to maintain price stability and prevent temporary price hikes from becoming long-term inflation.

US economy unexpectedly contracted in the Q1, with GDP shrinking at an annualized rate of -0.3%, marking the first decline since Q2 2022 and falling well short of expectations for modest 0.4% growth.

The surprise contraction was driven by a surge in imports and a pullback in government spending, which more than offset gains in investment, consumer spending, and exports. GDP price index jumped to 3.7% yoy, significantly above the 3.1% yoy forecast and accelerating from 2.3% yoy in Q4.

US NFP data showed that labor market remains strong with 177k job additions. March data was revised down from 228k to 185k, tempering some of the headline strength. 12 month average is 152k. Unemployment rate held steady at 4.2%, in line with expectations. Average hourly earnings rose just 0.2% mom, below the 0.3% mom forecast, bringing the year-over-year growth rate to 3.8%.

US core PCE price index, Fed’s preferred inflation gauge, came in flat on a monthly basis in March, undershooting expectations of 0.1% mom rise. On a year-over-year basis, core PCE inflation eased from 3.0% to 2.6%, offering some reassurance that underlying price pressures are gradually moderating. Consumer Spending remained resilient, climbing 0.6% m/m.

BoJ kept its benchmark interest rate unchanged at 0.50% today, by unanimous vote, in line with expectations. BOJ now projects Japan’s real GDP to grow just 0.5% in fiscal 2025, down from the 1.1% forecast in January, and 0.7% in fiscal 2026 (downgraded from 1.0%). BoJ acknowledged that “Japan’s economic growth is likely to moderate” as global trade and policy uncertainty weigh on external demand and corporate profitability.

Bank of England is likely to cut rates by 25 basis points on Thursday but isn’t expected to adopt a significantly more cautious stance.

Crude declined as Saudi Arabia indicated that it will tolerate lower crude prices. Gold corrected as risk sentiment improved.

Currency technical levels: USDINR: 83.75 (Supports), 85.25 (resistance),

EURINR:94.50(Support), 97.20/98.70 (Resistance)

GBPINR: Supports: 111.50/110.50( supports), Resistance:114.30(Resistance).

JPYINR: Resistance:59.60/60.60, Supports: 57.40 (support).

Hedging advise: USDINR payables be hedged at 83.75/83.30. USD Exports be covered on rally and till 85.50 is not breached. EUR receivables be covered as per comfort.  GBP receivables can be covered at 114+

 

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