Evening Report-sept 19.

Rupee closed at 45.82/84 per dollar from the previous close of 46.42/43. The currency was helped by a rally in local shares which renewed expectations of foreign fund inflows but the dollar's strength overseas is likely to curb sharp gains. An empty U.S. economic calendar will leave price action at the mercy of the broader economic winds and the interpretation of the potential impact of the plan from the U.S. policy makers. The current equity rally should extend through the U.S. trading sessions which may add to dollar bullish sentiment. Only removal of toxic assets from companies balance sheets will allow the economy to move forward and if the housing market rebound then the U.S. economy will become more attractive for investors. Although the FOMC is expected to leave rates on hold for the foreseeable future, the chances have increased that the BoE and ECB will have to cut their benchmark rates which should add dollar support over the medium term. EURUSD erased some of its gains as German producer prices pulled back from a 27 year high, falling 0.6% . Meanwhile, the yearly figure also slipped to 8.1% from the record high reading of 8.9%, which suggests that upward prices pressures have peaked and should moderate over the following months. Falling oil prices has helped to curb upside inflation risks for Europe’s largest economy but after excluding energy, factory prices were still up by 3.5% and remains well above the ECB’s 2% target. Slowing prices pressures suggests that the ECB may soften their hawkish bias going forward but may continue to hold a neutral policy stance for the rest of the year as the central bank abides by their principal mandate to ensure price stability for the Euro-Zone. USDJPY jumped over 300 points as the leading economic index for Japan inched higher to 91.4 from 91.0 in June. Rampant inflation paired with stagnant growth has certainly lowered growth expectations for the world’s second largest economy and conditions may only get worse export demands from the global economy falters. Sterling dropped 1 percent versus a rallying dollar with the U.S. currency surging as its government mulled over a more comprehensive solution to tackle the credit crisis. Speculation had grown that the BoE may institute an emergency rate cut. The British housing market is in similar trouble as the U.S. and the central bank may need to take measures to turn it s fortunes around. Credit Suisse overnight index swaps are pricing in 96 bps of cuts over the next 12 months which could start to weigh on the Sterling going forward.