FX Updates

A data and action-packed week lie ahead. Primary focus would be on the Brexit endgame. Theresa May engaging in cross party talks in a last ditch desperate attempt to salvage her deal has not gone down too well with several MPs of her own party. She has to have an alternative plan to take to the EU on 10 April. If the EU rejects the alternative plan, the UK could crash out without a deal. Alternatively, EU could offer a ‘flextension’, further deferring Brexit till the UK Parliament comes agrees on the future trading relationship with the bloc. The extension has to be approved by the UK parliament too. The Sterling could continue to remain under pressure till the uncertainty persists.

The ECB rate decision is due on Wednesday where it may make a mention of a tiered deposit system for banks (where banks do not have to pay -0.4% on their entire surplus parked with ECB). The FOMC minutes are due later the same day. Broader USD is trading strong post the better than expected headline NFP on Friday. Asian currencies are trading weaker against USD.

Crude prices have inched higher as supply concerns have resurfaced on account of political tensions in Libya where rebel forces are attempting to overthrow the government of national accord. RBI’s FX reserves rose to usd 412bn as on week ending 29 March as it reflected the USD 5bn mopped up through the currency swap.

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