CURRENCY OVERVIEW

The Indian rupee closed modestly stronger on Friday, aided by an easing in oil prices and the dollar after a searing rally in both kept up the pressure on the local currency through the week, eliciting central bank interventions to avert sharp falls. The rupee closed at 95.8125 per dollar, up slightly from its close at 95.9550 in the previous session. The currency was little changed on the week. Oil prices fell about 2% on Friday, though remained north of $100 per barrel as investors weighed attacks against Saudi Arabia by Houthi fighters against the possibility a truce between the US and Iran amid ongoing diplomatic efforts. Elevated energy prices have also lifted global bond yields as investors wager that central banks will need to raise borrowing costs to combat inflation. Persistent intervention by the Reserve Bank of India have, however, contained pressure on the rupee, traders said. The central bank has also used sell-buy swaps to mop up excess rupee liquidity from the banking system. The swaps, alongside relatively lower liquidity in the forward market and the cutting of stale received positions, pushed dollar-rupee forward premiums up sharply this week. The dollar fell on Friday but was on track for its second consecutive weekly gain on rising rate hike bets, while the yen rallied after Japan said Tokyo and Washington remain committed to the stance behind July's joint intervention. The euro rose 0.2% to $1.141 as energy prices fell , moderating wagers on Federal Reserve rate increases, but was on track for a third weekly decline after touching a two-month low on Thursday. Yen strengthens as Japan step up intervention warnings. The Japanese yen bounced 0.8% from three-week lows to fetch 157.65 per dollar. The currency rose after Japan's Finance Minister Satsuki Katayama said US President Donald Trump raised concern about yen weakness during a summit with Japanese Prime Minister Sanae Takaichi earlier this week. The dollar has been rallying against the yen and other major currencies, driven by strong US economic data, a hawkish Federal Reserve and surging US bond yields. The yen strengthened slightly after Katayama's remarks, rising from 158.60 per dollar to trade at around 158. The pound held steady on Friday at around its lowest in just under three months against the euro and dollar, with the US currency set for a second sharp weekly increase on rising energy prices and rate hike bets. Sterling was little changed at $1.322, after falling to $1.32 on Thursday, its lowest since June 29. Britain's currency was on track to fall 1.2% against the dollar in its biggest one-week fall since May, after declining 1% the previous week. Expectations of higher interest rates tend to push up yields on a country's bonds, making them more attractive and raising demand for the currency. The pound eased against the euro to its lowest in three months, with the euro zone's currency reaching 86.11 pence . Gold prices rose on Friday but was on track for a weekly loss, as rising US Treasury yields and growing expectations of Federal Reserve rate hikes weighed on the metal. Spot gold was up 0.6% at $4,303.19 per ounce by 1210 GMT, but was down about 1.7% so far this week. US gold futures rose 1% to $4,339. Gold demand in India picked up modestly this week as lower prices drew in buyers ahead of the festive season. Spot silver gained 1.4% to $64.82 per ounce, platinum added 1.7% to $1,777.38 and palladium fell 0.4% to $1,269.77. All three metals were poised for weekly losses.