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Rupee may not recover from 70 level anytime soon


By Gaurang Somaiya

The rupee went beyond the 70 mark for the first time ever today, chiefly due to strength in the dollar globally. The US currency rose to the highest level in 13 months on better-than-expected economic numbers and hawkish comments from a key Fed official.

Volatility for the rupee was confined to a narrow range of 68.50 and 69 for the whole of the week gone by. The local unit came under pressure only on the last trading day.

This week, market participants are tracking inflation and industrial production numbers. July consumer inflation has fallen to a nine-month low, keeping losses capped for the rupee.

Overall, volatility will continue to remain high as trade war concerns keep most market participants on the edge. For the week, the USD-INR pair is expected to quote in the range of 69 and 70 (spot).

For the past five months, the pound has closed in the red following concerns that the UK might exit the EU without a deal and on below-estimate economic numbers. Data released by the Office of National statistics showed that the UK economy grew at 0.4 per cent compared with a growth of 0.2 per cent in the previous quarter.

While most investors still expect Britain to secure a trade deal with the EU, the risk of no deal is rising. Worries over the UK exiting the European Union without a deal is weighing on the currency. The recent slide was set off after the BoE governor signalled that prospect of a no-deal Brexit was growing.

This week, volatility in the pound could be slightly higher ahead of employment and inflation numbers.

Earlier this year, Indias 10-year yields touched 8 per cent level, but gains for yields were limited after the RBI raised rates twice in its two consecutive meetings.

Bond prices weakened after the government lowered its H1 borrowing and lower crude oil prices took some pressure off the currency. In the coming week, yields will be taking cues from inflation numbers.

This week, yields could quote in the range of 7.65-7.80 per cent.

(The writer is currency analyst at Motilal Oswal Securities)

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