DAILY FOREX REPORT FOR 16 OCTOBER 2014

MARKET HEADLINES
 

Rupee gains on positive China trade data
The rupee started the week on a winning note after stronger-than-expected China trade data lifted risk appetite for emerging market assets by easing some of the recent concerns about the global economy. Data on Monday showed China's exports in September grew more than the market expected, while imports surprisingly expanded, alleviating worries about deteriorating domestic demand in the world's second-largest economy. But broader gains were capped ahead of consumer inflation data. Consumer price inflation is forecast to have eased to 7.2 percent in September, its lowest level since the government started releasing the data in 2012, according economists surveyed by Reuters. "We expect the rupee to trade range-bound in the near-term between 60.70 and 61.50," said Chintan Karnani, chief analyst at Insignia Consultants, a currency risk advisory firm in New Delhi. The partially convertible rupee closed at 61.0950/1050 per dollar compared with 61.34/35 on Friday. "The next key factor will be the cues from state elections in Maharashtra - if the BJP wins big, it will help boost the rupee as this would enable the federal government to push through more reforms." Prime Minister Narendra Modi spearheaded his party's campaign for elections later this week in Maharashtra, knowing that victory in the country's financial hub Mumbai will make it easier to push through economicreforms.

Sterling drops, gilts rally after UK inflation data
Sterling fell to a one-month low against the euro while 10-year gilt yields dropped to the lowest since June last year after UK inflation slowed more than expected, pushing back expectations of a rise in UK interest rates. Sterling extended its losses on the day to 0.75 per cent, falling as low $1.5959, its lowest in a month and not far from an 11-month low of $1.5943 struck earlier this month. The euro rose 0.25 per cent to 79.475 pence, its highest level in four weeks. British 10-year government bond yields fell by more than 3 basis points after the data to hit a low of 2.136 per cent, a level last seen in June last year. Gilts' yield spread over Bunds tightened by more than 3 basis points to as little as 125.0 basis points, while the December gilt future hit a contract high and short sterling interest rate futures rallied strongly. UK consumer prices rose 1.2 per cent on the year in September, compared with 1.5 per cent in August as the prices of food and motor fuels both fell, the Office for National Statistics said.

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