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Updated January 12th, 2024 at 08:09 IST

Rupee set for volatile session amid Fed rate cut speculation

Forecasts from Non-deliverable forwards suggest the Rupee may open either flat or slightly weaker against the US Dollar, compared to its previous close at 83.02

Business Desk
Rupee
Rupee | Image:Republic
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Rupee set for volatile session: The Rupee is poised for a volatile session on Friday, torn between optimistic expectations of a US rate cut, despite a higher-than-expected surge in US consumer prices, and restrained by its struggles to sustain gains beyond a crucial level.

Image Credits: Pexels

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Forecasts from Non-deliverable forwards suggest the Rupee may open either flat or slightly weaker against the US dollar, compared to its previous close at 83.0275. 

Despite briefly surpassing 83 on both Wednesday and Thursday, the Rupee faces uncertainties in its movement.

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"It will be a choppy kind of a day, in the sense there are good reasons for a move higher or lower," commented an FX trader from a bank. “On one hand, investors remain convinced of significant Fed rate cuts this year, despite the US data, and on the other, we have the dips (on USD/INR) just not holding.”

The US consumer price index (CPI) showed a 3.4 per cent year-on-year increase in December, exceeding the forecasted 3.2 per cent. On a monthly basis, CPI rose 0.3 per cent, compared to expectations of a 0.2 per cent increase. 

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Core CPI registered a 3.9 per cent year-on-year rise, surpassing the anticipated 3.8 per cent.

Despite the initial rise in US yields and the dollar index following the data release, these gains were short-lived. 

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The Dollar Index currently stands at 102.20, down from its peak at 102.75, and the 2-year US Treasury yield has retreated by 14 basis points from its highs to 4.26 per cent.

The likelihood of a Federal Reserve rate cut in March has slightly increased post the inflation data, with investors now anticipating 150 basis points of cuts for the year, up from about 140 before the release. 

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ING Bank stressed that the inflation data is just one measure, and the outlook for the consumer price index (CPI) remains promising.

“The CPI report isn't the only inflation measure the Fed looks at. In fact, the preferred measure – the core personal consumer expenditure deflator – has shown much better performance.”

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(With Reuters Inputs)

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Published January 12th, 2024 at 08:09 IST

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