Crosses rally on robust PMIs

Euro and Sterling rallied yesterday as France, Germany and UK manufacturing PMIs came in better than expected.

Onshore, the USDINR spot moved lower yesterday to close at the lowest point of the day. June futures are trading at 75.59, implying a spot of 75.56. Month-end export selling is likely to cap upside.

Nationalized banks were seen buying aggressively at 75.40 earlier and therefore it is likely to act as good support. USDINR is likely to trade in a 75.40-75.75 range intraday. Asian currencies led by the Korean Won are trading stronger against the US Dollar.

FPIs have invested net USD 3bn in domestic equities and sold USD 500mn of domestic bonds in June so far. This is the fourth successive month of outflows from the bond market. FPI is only utilizing 37% of its in corporate bonds and 40% of its limit on Government securities in the general category.

USDINR forwards too have been stable. 1y forward yield is at 3.85% while the 2y yield is 4.35%. Forward curve beyond 1y is richer.

Volatility has come down further with 3m ATMF vols now at 5.85%.