This week the euro could move slightly higher against the U.S. dollar, possibly heading toward $1.49. The continuation of this pattern will depend on good business and economic data which has emboldened investors and traders to believe that the pre-crisis trends and environment might have returned.
The euro has primarily benefitted from being seen as a higher yielding currency than the U.S. dollar. Improvement in risk appetite amid signs of positive macroeconomic data has made many investors move away from the safe haven U.S. dollar to other currencies such as the euro. The German Economic Sentiment index (ZEW) stood at 57.7 in September, lower than many market participants anticipated but higher than 56.1 in August.
Indian Rupee / Dollar
This week the Indian rupee is expected to hold around current levels, between 207 cents — 208 cents per 100 rupee. If foreign capital inflows continue to fuel the Indian stock markets, there is a possibility that the rupee could move above 208 cents.
The movement of foreign funds in and out of domestic equity markets is the key in determining the direction of the rupee against the U.S. dollar. Last week foreign institutional investors purchased $1.1 billion of Indian equity. As a result, the rupee moved higher against the U.S. dollar.
The Indian benchmark index, Sensex, rose 2.9% last week. There have been reports of rainfall in some of the major agriculture regions of India, which also has helped lift the rupee.
Sterling Pound / Dollar
The pound may continue to experience downward pressure this week, but could hold above support at $1.60. After having rallied briefly above $1.67, the pound began to drift lower early last week.
The pound then fell sharply after the Bank of England (BOE) Governor, Mervin King, provided a weak outlook for the economy in the United Kingdom. Many market observers viewed Governor King’s comments to the House of Commons Treasury Committee as a sign that the BOE could take further action to stimulate the economy.
This has sparked increased speculation about the possibility of interest rate cuts or another possible increase in the BOE’s quantitative easing program. Much of the decline in the pound may already have been seen, but a break below $1.60 could spark further selling.
