Indian Rupee Falls To 5-Week low Against US Dollar

The rupee fell to a 5-week low of 54.08 on Monday tracking the losses in EUR/USD pair. A better than expected US GDP release of Friday and weakness in Indian equities further added to dollar’s strength. India unveiled a five-year roadmap to put its finances in order, aiming to narrow its budget deficit to 5.3% of gross domestic product for the current fiscal year and to gradually bring it down to 3.0% by March 2017.

The fiscal consolidation plan is seen as a nudge to the Reserve Bank of India to cut interest rates at its policy meeting today in an effort to boost economic growth. RBI however reiterated its anti inflationary stance while acknowledging the concerns of economic slowdown.

A policy rate cut will see Rupee rallying in short-term supported by equities. On the other hand, a status quo outcome of RBI meet will not have a substantial impact on INR given that market does not expect a policy rate cut. Overall the pair should trade around its 50 SMA level of 54.05 till the outcome of RBI meet.

EUR/USD: The euro continued to weaken on Monday against major currencies, except sterling, on uncertainties in Greece and Spain. Meanwhile, Spain continues to stand still regarding full sovereign bailout. In addition, former Italian Prime Minister Berlusconi threatened to bring down Monti's government and there are uncertainties in the regional elections in Sicily. Spanish and Italian yield were mildly higher on Monday.

The pair is trading around 1.2920 levels in early Asian session. Apart from the Spanish and Greek worries, German unemployment data and Spanish GDP which will be under focus today. An up-tick in German unemployment will weigh negatively on euro. On the other hand, an improved Consumer Income and Spending levels will keep the dollar strong against major currencies. Immediate support for the pair is 1.2863 while resistance is 1.2936.

GBP/USD: The GBP/USD sterling was weighed down yesterday as BOE Deputy Governor Bean said that while the Q3 GDP figure was stronger than expected, he urged to "avoid getting over-excited." Bean warned that "the big picture is of an economy that's been bumping along the bottom." and Q4 growth could be weak. But Ben also noted there's “reason for some optimism going forward." And he hailed that UK banks made "significant progress in improving their resilience." Meanwhile the pair lacks any major fundamental trigger today and will trade at the mercy of overall risk sentiment in the market. We maintain our range bound view in GBP/USD till Friday’s outcome of US Jobs data.

USD/JPY: USD/JPY is trading at 79.92 in early Asian session as we head into the outcome of BOJ meet. Market expects BOJ would expand JGB purchase by another JPY 10T. Also, the central bank might introduce an open-ended operation for the quantitative easing program until it reaches the inflation goal. If the BOJ does announce an open ended QE, The USD/JPY rally will extend further towards 81 levels. In that case future movements in USD/JPY will solely depend on economic data out of the two countries as effects of US Fed’s QE will be offset by BOJ’s QE.

On the other hand, just an expansion of JGB purchases by JPY 10T may not extend rally further as markets have already factored in that possibility since last week. Immediate support for the pair is 79.30 while resistance is 80.63