Sharekhan has come out with its report on currencies. The rupee can appreciate to 53.00 levels as the much-awaited FDI reforms were finally approved by the Parliament. However, uncertainty in the European Union (EU) and the USA may see the rupee testing 55.30 levels.
Sharekhan has come out with its report on currencies.
INR-GBP: The GBP-USD traded in a narrow range of 1.58 to 1.60 as better than expected economic data and a sluggish outlook given by Bank of England (BoE) confused markets. The UK's GDP contracted 0.1% YoY in Q3CY2012, following a 0.5% fall in the prior quarter. BoE downgraded the country's economic forecasts and suggested that growth will be "weaker for longer". The central bank anticipates annual GDP to expand by 2% in two years. Policy makers have questioned the effectiveness of the asset purchase programme, which provided some respite to the pound. However, escalation of fiscal cliff worries in the USA can see the GBP/USD falling to 1.57 levels. We see the GBP-INR trading in a range of Rs85.40- 88.50.
INR-EUR: The EUR/USD pair has defied the weak European Union fundamentals to rally above 1.3 levels. The European Central Bank (ECB)’s and European Union (EU) politicos’ repeated rhetoric to save the euro has somehow supported the single currency. The debt problems in Greece, Spain and Italy continue to linger. Moreover, the ECB’s OMT has distorted the bond markets as yields fail to provide a clear picture of the sovereign economic health. We do not see any significant improvement in the underlying fundamentals and the single currency will see a sharp fall once the market ignores the benchmark sovereign yields, which have been capped by the ECB’s nonoperational OMT. The Eur-INR pair is likely to trade between Rs68.70 and Rs71.90.
INR-JPY: The yen weakened by 3.3% against the greenback as investors speculated Bank of Japan (BoJ) would implement easing more aggressively, especially if the opposition party, the LDP, wins the election. The LDP head suggested that BoJ should pursue unlimited easing until headline inflation hits 2-3% level. On the other hand, Japan’s weak economic data and strong performance from the USA account for further weakness in the yen. It remains to be seen if LDP will win election in December and initiate open-ended quantitative easing. We expect the USD/JPY to trade in the 83 -80 range in the short term. We see the JPY-INR in a range of 64.30 to 67.30.
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