Rupee in focus: The Rupee is set for early-week pressure following strong US job data, which lifted Treasury yields and the dollar, while bond yields are expected to soften as investors await the central bank's decision, likely maintaining the status quo.

Closing slightly higher at 82.9175 against the US dollar on Friday, the Rupee saw a 0.2 per cent weekly gain buoyed by optimism following India’s federal budget announcement. 

The government's plan to reduce fiscal deficit and gross borrowing in the upcoming fiscal year could attract debt inflows.

The dollar index reached a seven-week peak on Friday after US nonfarm payrolls surpassed expectations, leading the 10-year US Treasury yield to rise to 4.02 per cent. 

This robust yield rebound might weigh on emerging market currencies, including the Rupee, according to Arnob Biswas, head of foreign exchange research at SMC Global Securities.

Expectations of delayed US Federal Reserve rate cuts due to sustained strength in US economic data are also likely.

The 10-year benchmark bond yield closed at 7.0555 per cent on Friday, witnessing its largest weekly decline in 15 months, as the prudent budget enhanced appetite for government securities. 

Market participants anticipate the benchmark bond yield to trade within a 6.98 per cent-7.08 per cent range until the monetary policy announcement on Thursday.

The government aims to lower its fiscal deficit to 5.1 per cent of GDP next fiscal year from 5.8 per cent this year, planning to gross borrow Rs 14.13 lakh crore ($170.5 billion), below market expectations.

The government's fiscal tightening could prompt the central bank to relax its liquidity stance, according to Neeraj Gambhir, group executive and head of treasury, markets & wholesale banking products at Axis Bank. 

Hence, no immediate action is anticipated at this week's policy meeting, with the bank likely to continue injecting funds through shorter-duration repos.

(With Reuters Inputs)