Indian rupee weakens as US rate cut hopes fade

The Indian rupee fell on Monday, tracking a broader decline in Asian currencies as optimism for a US Federal Reserve rate cut this year waned, Reuters reported. This sentiment also led to a decrease in dollar-rupee forward premiums.

The rupee opened at 83.4925 against the US dollar, down 0.1 per cent from its previous close of 83.3725. This decline comes after stronger-than-expected US labour market data boosted the dollar and US bond yields.

According to CME’s FedWatch tool, the odds of a rate cut in September are now below 50 per cent.

The dollar index strengthened by 0.2 per cent to 105.3, extending gains from Friday. The Korean won led the losses in Asian currencies, depreciating by 0.9 per cent.

Analysts expect the dollar-rupee pair to remain “biddish” due to reduced expectations for US rate cuts. However, the trading range is likely to stay within 83.35-83.60, according to a foreign exchange salesperson at a large private bank.

The 1-year implied yield fell 3 basis points to 1.58 per cent, pressured by rising US bond yields. This marks the lowest level for the 1-year implied yield in over two months.

The 1-year US Treasury yield climbed to 5.20 per cent in Asian trading hours, following a 9-basis point increase on Friday.

Despite the weakening rupee, Indian equity markets showcased resilience. The benchmark BSE Sensex and Nifty 50 touched record highs in early trade before paring gains and settling flat for the day.

This week, attention will turn to local and US inflation figures, leading up to the important Fed policy announcement on Wednesday. The Fed is expected to keep interest rates steady, but investors will be watching Chair Jerome Powell’s remarks and any changes to the Fed’s interest rate forecasts, referred to as the “dot plot.”