Rupee, yen, euro to gain currency as dollar weakens

Is the weakness in the dollar evident in the global currency markets? The rupee actually touched the 39.75 level, which is its nine-year high against the dollar, has come back into focus. CNBC-TV18 report

Over the last one week after the Fed cut its benchmark lending rate by 50 bps to about 4.75 per cent, increased risk appetite and overnight lending rates going down have led to a fresh surge in liquidity, specially in emerging markets.

The dollar touched its biggest low against the euro ever since the euro came in to being in 1999 down to 1.412 per euro last mid week. It has declined against 13 of 16 major currencies. The markets have seen some fresh weakness in the dollar today because the existing home sales data as well as the consumer confidence data, scheduled for tomorrow, is expected to reveal some negative results, which will probably spur another 50 bps rate cut at the 31 October meeting of the Federal Open Market Committee of the US Federal Reserve Board.

Coming to the dollar-yen equation, the yen has actually depreciated against the dollar over the last one week. In fact, it has depreciated against 16 major currencies in the last one week. This could probably be attributed to a redressal of the yen carry trade having come about. The yen benchmark lending rate is about 0.5 per cent versus about 4 per cent in the euro region. Therefore, the yen has depreciated, but it has seen some strength today.

But the rupee has been the major story; it has breached a $40-level mark. We have also seen $1.2 billion of inflow in cash over the last three days. Going forward, we should see a lot of more strength in the rupee.