Rupee under pressure: The rupee is set to encounter challenges on Wednesday as sticky US inflation indicates a potential delay in Federal Reserve interest rate cuts. Anticipated outflows in dollars are also likely to weigh on demand for the domestic currency.
Non-deliverable forwards suggest that the rupee will open at approximately 82.80 against the US dollar, compared to 82.7675 in the previous session.
The US February core consumer price index (CPI) exceeded expectations, rising by 0.4 per cent month-on-month, mirroring the increase in the headline CPI.
Apart from US inflation, market analysts point to two additional factors driving a potential uptick in USD/INR exchange rates.
The Reserve Bank of India (RBI) has signaled its intention to prevent further depreciation of the rupee, while a major dollar outflow is anticipated due to British American Tobacco’s plan to divest a portion of its stake in ITC, estimated at nearly $2 billion.
Recent interventions by the RBI to curb the rupee’s appreciation are also considered as factors influencing the currency’s movement.
The rise in US Treasury yields following the higher inflation data has put pressure on Asian currencies, with investors scaling back expectations of a Fed rate cut at the May meeting.
The likelihood of a rate cut at the upcoming meeting is now minimal.
According to Kit Juckes, chief FX strategist at Societe Generale, the US data reinforces the view that the Fed may delay rate cuts for a longer period, adding support to those who believe in a prolonged wait before any policy adjustments.
India’s retail inflation in February also exceeded expectations, rising at a slightly faster-than-expected pace.
(With Reuters Inputs)
