All eyes are on the US Federal Reserve, which will release on Wednesday the minutes of the latest rate-setting Federal Open Market Committee (FOMC) meeting. Investors will look at statements in the FOMC minutes to understand whether the Fed intends to carry on with its bond-buying programme.
Hopes are high that the bond-buying programme, which infused billions of dollars into the US banking system, would not be wound down immediately.
"Given what the Bank of Japan announced last week, it is likely that the Fed and the ECB (European Central Bank) will have to respond to prevent their currencies from appreciating," said Saurabh Mukherjea, head of equities, Ambit Capital. "One way they could do that is to talk down their currencies by hinting at a further easing. That should be good for risk asset classes."
Investors fear if the monetary policy is tightened, it could result in a slowdown in foreign inflows into emerging markets, including India.
