Rupee to inch higher against dollar despite Asian currency trends

Rupee to open strong: The rupee is set to start slightly higher on Thursday, shrugging off the weakness seen in other Asian currencies and the uptick in US Treasury yields. Forward contracts suggest that the rupee, compared to its previous close of 83.5175, will open at 83.46-83.48 against the US dollar.

According to an FX trader at a bank, the anticipated softer opening for USD/INR is unlikely to significantly alter the current directionless trend in the market. The trader noted, "There is nothing much here. A slightly softer opening (for USD/INR), if it does materialise, will not change the directionless mode we are in."

The rupee has been trading within a narrow range of around 83.50 for the past two sessions, largely due to selling pressure from public sector banks, potentially acting on behalf of the Reserve Bank of India (RBI).

The RBI may be intervening to counterbalance dollar demand from oil companies, alongside the absence of major portfolio inflows and regular daily flows.

Across Asia, most currencies were lower, while US Treasury yields saw an increase. Despite the lack of substantial US economic data this week, investors have priced in two rate cuts by the Federal Reserve this year, with expectations starting in September. However, upcoming US consumer inflation data next week could potentially alter these expectations.

Looking ahead, the Bank of England is set to announce its monetary policy decision later in the day. Although no rate cut is anticipated, market observers will be attentive to any dovish signals, considering the recent stance of the Federal Reserve.

ING Bank noted in a report that while a rate cut in June remains a possibility, investors will closely analyse the forward guidance provided by the Bank of England.

(With Reuters inputs)