20 Nov 2023

USD posted steep loss as inflation came below expectations

Synopsis: The USD weakened as disappointing economic data suggested the Federal Reserve may not raise rates. US inflation eased to 3.2%, while falling oil prices boosted the INR, despite stable food inflation in India.

author dp
Team INRBonds
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  • The USD ended the week lower after a series of weaker-than-expected data fueled investors' expectations that the Federal Reserve will not raise interest rates further.
  • US inflation, as measured by the consumer price index, rose 3.2% year on year in October, down from 3.7% in September and below expectations of 3.3%.
  • Core inflation, which discounts more volatile items such as food and fuel, rose 4% year on year, down from 4.1% and below expectations.
  • The producer price index fell by more than expected, dropping 0.5% month on month in October, below the expectation of a 0.1% increase. This was also down from the 0.4% inflation seen in September.
  • Jobless claims rose by 231,000, up from 218,000 in the previous week and well ahead of the 220,000 that were expected.
  • INR ended the week higher against the USD largely on two accounts. Firstly, the broad fall in USD, and secondly, the sharp decline in crude oil prices.
  • WTI has fallen 4.5% this week, extending losses of 4.15% from the previous week. Falling oil prices are good news for India, which imports around 80% of its oil needs.
  • Indian retail inflation cooled in October to a four-month low of 4.87%, moving closer to the central bank's 4% target level. However, food inflation, which makes up over half of the inflation basket, remained unchanged at 6.2%.

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