Priyanka Tiwari
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Supported by possible action from the central bank and the rise of the Asian currencies, the Indian rupee strengthened on Tuesday as the dollar fell to its lowest level since November relative to other currencies. The rupee closed at 87.2125 against the US dollar, an increase of 0.1% on the day. The currency had declined to 87.3850 earlier in the session during which the dollar bids driven by the maturity of positions in the non-deliverable forwards (NDF) market were exerting pressure. Traders mentioned, however, that potential action from the Reserve Bank of India was instrumental in limiting its losses. During the later part of the session, the rupee capitalized on the drop of the dollar. As the Asian currencies rose, so did the offshore Chinese yuan, which rose 0.4% during the day. The dollar index, which fell by 0.5% to 103.3, also aided these currencies outperforming the dollar. MUFG Bank mentioned in a notice that “Heightened US policy uncertainty created by President Trump is raising doubts over the US dollar’s safe haven role alongside the unwinding of popular US tech trades.” The uncertainty surrounding the trade tariffs and their effect on the growth-inflation balance within the United States has depleted the risk appetite from the market.
Concerns regarding growth have also caused traders to increase their bets around rate cuts from the Federal Reserve this year.
According to LSEG data, traders are now estimating a total of 85 bps of easing from the Fed this year, compared to 75 bps on Monday.
In the meantime, dollar-rupee forward premiums increased, along with the 1-year implied yield which rose by up to 4 basis points to 2.20% due to falling U.S. bond yields.
Now, investors’ focus shifts to the consumer inflation data for the U.S. and India set to be released Wednesday, as it is likely to determine rate cut expectations from the two central banks.
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