Dollar strong and US yields on a tear. Rupee back under pressure.

26th September 2023

INR likely to open around 83.10/15

Dollar traded firm yesterday, supported by a relentless rise in US yields across the curve. Fed hawkishness is keeping the 2y elevated, while the borrowing pressure and the looming September 30th deadline for US budget approval and spending, are keeping the long-term rates higher. Dollar Index is at 105.70, with EUR at 1.0585, GBP at 1.22 and JPY at 148.90. US 10y has shot up to 4.56%. While equities in the US managed to close in the green yesterday, rising yields and other uncertainties keep risk appetite muted. DOW ended yesterday 0.15% higher. Nifty ended virtually flat. 

Rupee has exhausted the good news related to India’s inclusion into JPM’s bond index. The rising US 10y yield remains the single most important risk factor for risk assets such as the Rupee. Equities the world over are hanging on to hopes of a soft-landing and eventual central bank rate cut cycle. Rising long-term yields can disrupt both the economy and impact financial risk. Latest comments from another Fed member remain hawkish, given the tight labor market in the US. The immediate news-worthy event would be a potential government shutdown in the US, as the Congress spars over spending bills. USDINR remains biased upwards as the positivity surrounding the Rupee is now spent. A dip in USDINR is a good buying opportunity for long-term hedging.

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