Global Currency Highlights:
- Dollar to weaken if incoming data remains soft and Fed rate hikes get priced out.
- Narrowing rate advantage over EUR and GBP to weigh on dollar.
- More rate hikes by ECB and BoE favour EUR and GBP upside.
- JPY to remain under pressure on rising preference as a funding currency, widening trade deficit.
Indian Rupee Highlights:
- RBI intervention, capital flows and lower oil prices supported INR over the last month.
- Easing inflation supports our view of an extended pause in rates by RBI in 2023.
- An extended pause to ensure real rates are sustained above 1%.
- Rupee volatility eased to multi-decade lows.
- FX Reserves fell to USD 593.7 billion, down from USD 600 billion a month ago.
- RBI net forward dollar book declined marginally to USD 19.9 billion in April.
- Forward premia rates edged lower amidst narrowing India-US 10yr yield differential.
- We foresee rupee at 81-83 levels by end-FY24.
