EME currencies remain volatile in tune with developments in US-China trade negotiations and varying expectations regarding Fed monetary policy: RBI

The Indian rupee (INR) depreciated slightly against the US dollar in October, reflecting the impact of a stronger US dollar following the US Feds policy announcement around the end of the month, RBI noted in its November bulletin. In mid-October, however, the INR registered a brief but sharp appreciation, supported by optimism over India-US trade talks and renewed net FPI inflows. Consequently, rupee volatility increased marginally during the month, although it remained relatively contained compared with most major currencies. In November so far (up to 21st), the INR appreciated slightly by 0.1 per cent over its end-October level. In real effective terms, the Indian rupee appreciated marginally in October mainly driven by appreciation in nominal effective exchange rate, it noted.

Meanwhile, the US dollar broadly strengthened till early November on increased safe-haven demand amidst the US government shutdown, and lower expectations of Fed rate cut in the December meeting. However, it fell thereafter as markets awaited official data releases post US government reopening. Emerging market currencies remained volatile, in tune with developments in US-China trade negotiations and varying expectations regarding Fed monetary policy. Even as debt flows moderated, portfolio flows to major emerging markets improved in October driven by a surge in equity flows on strong macroeconomic fundamentals and elevated expectations of US rate cut.

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