Updated March 13th, 2024 at 08:26 IST

Rupee faces pressure amid expected outflows, potential Fed rate cut delay

Non-deliverable forwards suggest that the rupee will open at approximately 82.80 against the US dollar, compared to 82.7675 in the previous session.

Reported by: Business Desk
Rupee | Image:Freepik
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Rupee under pressure: The rupee is set to encounter challenges on Wednesday as sticky US inflation indicates a potential delay in Federal Reserve interest rate cuts. Anticipated outflows in dollars are also likely to weigh on demand for the domestic currency.

Non-deliverable forwards suggest that the rupee will open at approximately 82.80 against the US dollar, compared to 82.7675 in the previous session.

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The US February core consumer price index (CPI) exceeded expectations, rising by 0.4 per cent month-on-month, mirroring the increase in the headline CPI.

Apart from US inflation, market analysts point to two additional factors driving a potential uptick in USD/INR exchange rates.

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The Reserve Bank of India (RBI) has signaled its intention to prevent further depreciation of the rupee, while a major dollar outflow is anticipated due to British American Tobacco's plan to divest a portion of its stake in ITC, estimated at nearly $2 billion.

Recent interventions by the RBI to curb the rupee's appreciation are also considered as factors influencing the currency's movement.

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The rise in US Treasury yields following the higher inflation data has put pressure on Asian currencies, with investors scaling back expectations of a Fed rate cut at the May meeting. 

The likelihood of a rate cut at the upcoming meeting is now minimal.

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According to Kit Juckes, chief FX strategist at Societe Generale, the US data reinforces the view that the Fed may delay rate cuts for a longer period, adding support to those who believe in a prolonged wait before any policy adjustments.

India's retail inflation in February also exceeded expectations, rising at a slightly faster-than-expected pace.

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(With Reuters Inputs)

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Published March 13th, 2024 at 08:26 IST