After the US annual inflation rate declined to 7.7% in October—the lowest annual increase since January—and slowed from 8.2% in September, there was growing optimism that the US Federal Reserve would soon be less aggressive in raising interest rates. As a result, on November 10, the US dollar index, which gauges the greenback's strength against a basket of six currencies, dropped 2.12% in a single day, marking one of the largest single-day falls so far in 2022.
In October, the dollar index lost nearly 0.51% of its value; so far in November, it has lost nearly 3.47%. At its current price of 107.73, it was trading down almost 6.13% from its 2022 peak of over 114.77. However, the dollar index is still up by 11.60% in this current year.
Following the release of lower-than-expected inflation figures, US indices surged in trade on Thursday. The Dow Jones Industrial Average jumped 1,201.43 points, or 3.7%, to 33,715.37, and the S&P 500 surged 207.80 points or 5.54% to 3,956.37. The Nasdaq Composite rallied 7.35% to 11,114.15.
Meanwhile, the US Fed has delivered six consecutive rate hikes so far in 2022, bringing the federal funds rate to 3.75%–4% of the way from zero. Borrowing costs in the United States have reached a new high since 2008.
Taking positive cues from the US markets, Indian equity markets jumped off to a strong start on Friday. The Sensex opened Friday's trading session with a gap up of 698 points at 61,311 after losing 420 points on Thursday. while the Nifty opened the trade at 18,272, up by 244 points from the previous close of 18,028.
At 12:30 p.m., the Nifty was up 281 points at 18,310 and the Sensex was up 996 points at 61,611. Among sectoral indices, Nifty IT is up by 3.67%, followed by Nifty Bank with 1.29% gains, and Nifty Consumer Durables is up by 1.01%.
The Indian rupee, on the other hand, strengthened 71 paise to 80.69 against the US dollar in the early trade on Friday. The Indian rupee opened at 80.76 against the US dollar and gained further to touch 80.69, registering a rise of 71 paise over its previous closing price of 81.40.
If the US Fed continues to be cautious about raising interest rates, FPI flows into Indian equities may increase soon. In November, FPIs turned around and invested nearly ₹15,280 crore in the first week, according to media reports. In October, FPIs withdrew just ₹8 crore, and in September, the outflows stood at ₹7,624 crore. FPIs were sellers in October initially, but the sell-off had slowed drastically on the back of some improvement in sentiment in the global markets.
Elsewhere, crude oil prices climbed on Thursday, fuelled by the weak dollar. Brent crude futures ended at around $93.67 per barrel on Thursday, up by 1.10%. WTI crude futures ended at $86.47 per barrel, an increase of over 0.75% from the previous closing price.
Overall, Brent crude gained nearly 11.12% in October, registering one of the largest monthly gains since January, and WTI gained 9.92%, the most since January when it gained 15.50%. The surge in oil prices began after OPEC+ agreed to cut oil production by 2 million barrels per day from November, the largest reduction since the pandemic began, and the reduction is roughly equivalent to 2% of global oil demand.
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