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Updated January 23rd, 2024 at 08:40 IST

Rupee may weaken as bets on near-term Fed rate cuts fade

Non-deliverable forwards suggest that the Rupee will open around 83.10 against the US Dollar

Business Desk
Rupee
Rupee | Image:Republic
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Rupee may fall: The Rupee is anticipated to experience a decline at the opening on Tuesday due to diminishing expectations of near-term interest rate cuts by the US Federal Reserve. 

Non-deliverable forwards suggest that the Rupee will open around 83.10 against the US dollar, compared to its Friday close of 83.0650, with the market being closed on Monday.

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The near-term outlook for USD/INR is now deemed "more or less neutral," as it has climbed back above 83, according to a forex trader at a bank. 

The recent low near 82.80 is not expected to be revisited in an environment where market expectations for the Fed's actions in March are being recalibrated.

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The probability of a Fed rate cut in March has decreased to nearly 40 per cent, down from 75 per cent a week ago, according to the CME FedWatch tool. 

The likelihood of a cut at the upcoming meeting is almost zero. Recent US economic data and statements from Fed officials have prompted investors to reconsider when the central bank might implement its first rate cut.

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Several Fed officials, starting with Governor Christopher Waller, pushed back on expectations of aggressive rate cuts, emphasizing the need for assurance that inflation will consistently hover around the 2 per cent target before considering rate cuts.

In the past week, the dollar index reached its highest point in over a month, and US Treasury yields have rebounded from recent lows. 

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The focus this week will be on the Bank of Japan's policy decision, set to be announced shortly, and the European Central Bank's decision on Thursday.

Regarding the BoJ policy, ING Bank noted, “the market's attention will be on what Governor Kazuo Ueda thinks about inflation and wage growth and whether he will give any hints of policy change in the near future.”

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(With Reuters Inputs)

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Published January 23rd, 2024 at 08:40 IST

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