Prior to the Fed meeting, Motilal Oswal anticipates that the Dollar Index would rise

Even after the RBI’s policy announcement, which kept rates steady and maintained its “withdrawal of accommodation” position, the rupee steadily increased within a small range. Taking into account India’s robust economic growth and persistent inflation, the central bank maintained its policy rate and position.

 

Strong economic momentum implies that the MPC would not be inclined to reduce rates sooner. As the dollar strengthened versus its main crosses and Middle East geopolitical concerns increased, the rupee fell to new record lows.

According to figures presented on the home front, inflation increased to 4.89% as opposed to the anticipated 4.9%. However, industrial output increased 5.7% in February compared to 3.8% rise in January, indicating that the manufacturing sector’s development is still steady.

On the other hand, volatility decreased once the RBI took an active role in the market. The RBI’s reserves may have decreased somewhat after reaching their peak earlier this month at $648.6 billion, according to the most recent statistics.

This month, no new domestic economic data is anticipated to be issued except the inflation and industrial output figures. However, it will be crucial to pay attention to this week’s FOMC policy announcement; it is anticipated that the central bank may decide to hold rates steady, and the commentary will be what drives the dollar’s volatility.

The rupee may see modest volatility in the early part of the week and increasing volatility in the second half. The USDINR (Spot) is anticipated to quote between 83.10 and 83.80 and move sideways with a bullish bias.

Worldwide Currency
Although there was some buying activity in the dollar at lower levels, gains were limited when statistics revealed that the US economy expanded in the first quarter at its weakest rate in over two years. A slight accumulation of unsold items at firms and a spike in imports contributed to the general weakness.

The GDP grew last quarter at its weakest rate since the second quarter of 2022, 1.6% annually. After growing at a 3.3% pace in the fourth quarter, the economy expanded at a 3.1% rate when inventories, government expenditure, and trade were excluded.

According to the most recent statistics, the weekly jobless claims report revealed that initial claims for unemployment benefits decreased by 5,000 to a seasonally adjusted 207,000, indicating that there has not yet been a severe downturn in the labor market.

However, the core PCE index increased slightly to 2.8% in March, and rising housing and utility costs imply that the Federal Reserve may decide to maintain high interest rates for some time.

Aside from the Fed’s policy speech this week, market players will be watching the non-farm payrolls data, which might have an impact on the dollar. The Dollar Index is predicted to quote between 105.20 and 106.80 and move with a positive tilt.