Northward-bound

CURRENCY

The Purchase Power Index released in the United States last week stood at around 0.7 per cent against the consensus expectation of one per cent.

This has fuelled talk that the Federal Reserve might put not step on gas to hike interest rates in that country "" as was advocated a couple of weeks back after the Federal Open Market Committee meeting.

Meantime, the foreign exchange market is keenly awaiting the appreciation of the euro and pound against the dollar.

They believe this will, in turn, result in an appreciation of the rupee against the greenback.

Under the circumstances, dealers foresee the spot rupee rising to $43.50 per dollar. Another factor that could ensure "" or reverse "" the trend is the inflow from foreign institutional investors.

Also, if oil prices rise afresh, it could impose depreciating pressure on the rupee as demand for dollars among importers would go up.

Steady forwards

Forward premiums went up sharply last week and are expected to remain around those levels this week too. However, if international oil prices ascend, there will be greater demand for forward dollars, especially in the near terms "" one month and three months, which could push up premiums.

On the other hand, owing to the lower-than-expected US Purchasing Power Index, the interest rates on US bonds are likely to decline this week.

This would widen the differential between the Indian and US interest rates. Consequently, there could be upward pressure on forward premiums.

Recap: The spot rupee remained volatile throughout last week following the fall in share prices.

Towards the end of the week, international oil futures "" which touched $48 per barrel on the New York Mercantile Exchange, played spoilsport by pushing up the forward premium on dollars.