In the global market, there is not much volatility either, though US Dollar has gained against the major currencies worldwide. Euro continues to suffer from a divergent path of monetary policy between ECB and the US Fed. British Pound has also corrected from its multi-year highs, on the back of mixed message from the Bank of England. Japanese Yen remained soft against the US Dollar, as trade balance in Japan widen to a record deficit.
Over this week, traders will have lots of data from US economy and somewhat from China and Euro zone too. In US, the heavy weight data will be the US Q2 GDP numbers. Consensus is calling for a number between 2.5-3.0% positive. In case, the actual number comes in below 2%, we can see a sharp sell-off in US Dollar and also a sell-off in the developed equity markets. There is a growing disconnect between the labour market and the economy. Since the global financial crises in 2008, the quality of jobs has deteriorated. More temporary and low paying jobs have replaced the high paying jobs before the crises. At the same time, a large chunk of the working age population has fallen out of the labour force. The result has been, a wedge between where the economic growth is and where it should be based on official unemployment rate and the unemployment claims data. Add to that the fact that years of easy monetary policy might have been so inflationary that it might finally start to exhibit through the general price level in the economy. The nightmare scenario for the US Fed couple be, if a stagflation occurs over the next 12/24 months.
This week, the US central bank meets to decide on the monetary policy outlook. We may not get much of change in language at the new meeting, the usual mix of words concerns over the economy and inflation expectation will keep markets volatile. Later down in the week, traders have the US Job numbers to digest. All in all, USD/INR can remain stuck within a range of 59.60/59.80 and 60.40/60 levels on spot.
By Anindya Banerjee, analyst, Kotak Securities