Dollar is trading slightly weak and US yields are steady, waiting for the US CPI to provide an indication of the inflation trajectory in the US. Risk appetite remains comfortable in markets, and equities continue to move higher, albeit at a gradual pace. Dollar Index is at 104.20, with EUR at 1.0745, GBP at 1.2515 and JPY at 146.70. US 10y is at 4.3%. DOW is up 0.25%. Nifty has breached the 20k leveland is at all-time highs, riding on high Indian growth expectations.
Rupee is back below 83 again as the short-term risks are balanced out by strong risk appetite. Tomorrow’s CPI is expected to show an uptick in inflation due to the base effect of the higher CPI index of last year. Given that inflation is not a big concern for the markets, recession risk remains the primary focus for us as we continue to believe that the risk is underpriced currently. USDINR could trade in a range for a few more days until any of the long-term risk factors starts to play out. Tail risk hedging using options remains critical in the current environment.