INR update: Hawkish but under confident FED drives USD lower

INR update: Hawkish but under confident FED drives USD lower

The FED kept total 3 rate hikes for 2018 intact while increased 1 rate hike forecast for 2019 and 2020 each. So the FED was hawkish but dollar sold off. The reason for this confusion could be that while the FED upwardly revised GDP growth forecasts for 2018 and 2019 it left the 2020 forecasts flat at 2%. Market perhaps focussed on the economic outlook more than any other forecasts and decided that the projections still included doubts on long term sustainability of growth in the US. The FED also acknowledged that trade tensions would become a concern for the committe going forward. The 10-2 US treasury spread consequently remained at 58 bps (yesterday at 55bps). Once the FOMC was behind, the market also focussed on the white house announcement that on Friday it will announce new trade restrictions against China. News on Trade war has been dollar and equity negative. For some time, headlines from trade protectionism should continue to drive the markets. Today the BOE might provide an opportunity to buy GBPUSD at a lower rate in case the central bank turns out to be more dovish than market anticipates.

USDINR 1m NDF spread continues to show mild offshore buying pressure. Asian equities are mixed while dollar has weakened across the board. The INR negative rhetoric on account of stoppage of buyer’s credit is perhaps behind us. USDINR has traded in the broad range of 65.25-64.85. I would think that during March end it can head back momentarily below 65 while in April it should head towards 66. CMP 65.10, Range 65 to 65.15.