MC:Rupee may continue to show strength in early trades
Nirmal Bang has come out with its report on currency. According to the research firm, rupee may continue to show strength in early trades today.
The Indian rupee posted its biggest daily gain in three years on Friday after the government confirmed it will not impose retroactive taxes on foreign investors and as global risk asset rallied. The government released draft rules on Thursday and said the general anti avoidance rules, or GAAR, would not apply retroactively, a big concern for portfolio investors. The rupee settled at 55.6050/6150, rising 3.1 percent over its previous close. It rose 2.7 percent on the week, its biggest weekly gain in over two and a half years. India has been buffeted by various macroeconomic concerns, primarily the twin fiscal and current account deficits, leaving it vulnerable to capital outflows at a time of global risk aversion. The rupee may continue to show strength in early trades today. However, we can see some dollar bidding coming in at 55.40-50 in spot. Moreover, we do not see a significant appreciation in rupee after the knee-jerk reaction on Friday until we see some developments on the reforms front which would ultimate allay the twin deficit concerns.
The euro headed for its best day against the dollar in eight months on Friday after euro zone leaders agreed on measures to stabilize banks and reduce borrowing costs for Italy and Spain, but the rally looked set to be short-lived. Euro zone leaders agreed that its rescue funds could be used to stabilize bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms. Spanish and Italian government bond yields fell sharply on the EU deal, while 10-year Irish government bond yields fell to their lowest since before the country agreed to its international bailout. Details of the agreement, which also includes the creation of a single supervisory body for euro area banks, remain unclear. Still, the outcome surprised investors who had positioned for the euro to weaken as expectation for any action during a two-day European Union summit had all but vanished. Currency speculators increased their bets in favor of the U.S. dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net long position rose to $26.73 billion in the week ended June 26, from $22.13 billion the previous week.
