Currency Market Update 12-Dec :FED Pause focus shifts to UK election

As expected, US FED, which had suggested a pause in the last meet, has kept the interest rates unchanged at 1.50%-1.75%. US FED’s dot plot also suggested that FED is unlikely to cut interest rates in 2020 and it might start raising rates from 2021. US FED official projections showed that labor market likely to remain strong with unemployment rate to be 3.5% in 2020 and core inflation might remain below 2%. At the press conference, Powell suggested that FED might not raise interest rates until core inflation stabilize above 2%. It is noteworthy FED’s core inflation, median forecast remain at 2% until 2022. Consequently, US 10 year bond yields fell to 1.80% and US dollar index fell to 97.00.

Cable might witness wild moves as UK votes again to resolve Brexit crisis. GBP/USD pair has spiked to 9 months high levels of 1.3220 on expectations of a Conservative victory. As discussed earlier, 25 delta risk reversal volatility is suggesting that risks are skewed on the downside. Unless, Conservative party win with significant majority there could considerable correction in Cable. On the other hand, EUR/USD pair, which spiked to 1.1140 on softer dollar, will take further cues from Christine Lagarde’s first monetary policy. ECB is likely to remain dovish while keeping its policy unchanged. Technically, EUR/USD pair has significant resistance at 1.1170-1.1180 levels and Euro might find it difficult to break it given gloomy economic outlook.

On the domestic front, 10 year bond yields surged to 6.75% as S&P warned that it may lower India’s rating if economic growth does not recover. USDINR pair opened the session on a weak note at 70.69 amid the softness in US dollar index. USDINR pair has first support at 70.55-60 levels and second support at 70.35-40 levels and resistance at 70.85-90 levels. Range for day seen as 70.55-70.82.