On Friday, Indian rupee was under pressure due to sell-off in emerging market currencies. The pair touched an intra-day high around 62.75 on spot and then closed around 62.65/66 levels. Indian equity markets closed in the green with gains lead by Small Cap and Mid-Cap shares.
In economic news, German retails disappointed as it dropped by 2.5 per cent in December compared with November. Taking 2013 as a whole, retail sales edged up by a meager 0.1 per cent over the entire year. French consumer spending inched down in December, as households cut purchases of clothes and accessories.Consumer spending in France dropped 0.1% last month, but posted a 1.4% increase on the year.
In Euro zone, inflation dropped to 0.7% in January from 0.8% in December. Euro zone continues to face contraction of money supply as credit to private sector remains anaemic. At the same time, balance sheet of European Central Bank continues to contract, as the Euro system pay down the loans they had taken under LTRO programs during 2011/12. A stronger Euro, beneficiary of the deflationary shock is also creating feedback loop of a deflationary trend in the currency union.
Over the next week, we expect the Indian Rupee to trade in a range of 62.00/62.30 and 63.30/50 levels. The pair has been caught in a wide range of 61.00 and 64.00 for many months now.