USD eases despite inflation rising
USD traded lower last week tracing lower UST yields despite consumer prices rising by more than expected and despite the minutes from the latest Federal Reserve monetary policy meeting indicating that the Fed will start tapering bond purchases mid-November to December.
US consumer price inflation rose to 5.4% year on year, up from 5.3% in August. On a monthly basis, CPI rose 0.4% against the expectation of 0.3%. Minutes of the Fed's September meeting confirmed this week that a tapering of stimulus is all but certain to start this year, although policymakers are divided over inflation and what they should do about it.
A strong start to the US earnings season has helped to calm inflation fears boosting market sentiment on Friday. Adding to the upbeat mood, US retail sales unexpectedly rose in September, highlighting the resilience of the US consumer. Sales rose 0.7% month on month, after rising an upwardly revised 0.9% in August and against the expectation of a 0.2% decline in sales.
Indian trade deficit widens
INR ended the week lower as India’s trade deficit widened to record levels in September. The deficit reached USD 22.6 billion as crude oil and gold imports surged, data released by the government revealed.
The widening trade deficit is currently being cushioned by an inflow of foreign funds and the forex reserves which rose to over USD 639 billion in the first week of October is keeping the Reserve Bank of India calm.
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