Indian Rupee Gains Against the US Dollar Amid Fed Speculation
- The Indian rupee is making gains against the US dollar, influenced by expectations around the Federal Reserve’s dovish stance.
- In July, core inflation in the US rose to 3.1%, marking a faster increase.
- Conversely, India experienced its slowest retail inflation growth in eight years, settling at 1.55%.
On Wednesday afternoon, the Indian Rupee (INR) is anticipated to strengthen against the US Dollar (USD). Following the US Consumer Price Index (CPI) data for July, the USD/INR exchange rate fell to approximately 87.65. This decline in the dollar seems tied to traders increasing their expectations that the Federal Reserve might lower interest rates at their upcoming September meeting.
Currently, the US Dollar Index (DXY), which measures the dollar’s value against six prominent currencies, is down by 0.4%, hovering around 97.70, which is the lowest it’s been in two weeks.
The chances of a Fed rate cut this September have climbed from around 86% earlier in the week to about 94%, as indicated by the CME FedWatch tool.
The US CPI report noted a steady rise in headline inflation at 2.7% annually, a slight underperformance against the expected 2.8%. Meanwhile, core CPI, which excludes food and energy fluctuations, ticked up to 3.1%, surpassing the 3% forecast and last month’s 2.9%.
However, analysts from Scottiabank pointed out that a deeper dive into the July CPI data reveals a concerning trend; inflation has been accelerating since January, with core consumer prices seeing a 0.3% increase this month.
Market Overview: Indian Rupee Faces Pressure Amidst Cooling Inflation
- The outlook for the USD/INR exchange rate indicates that while the Indian rupee is performing better, it remains affected by the overall strength of the US dollar. There’s uncertainty surrounding the rupee’s stability as the Reserve Bank of India (RBI) has lowered its inflation forecasts, potentially leading to more interest rate cuts, which could heighten risks related to retail inflation in India.
- This week, India’s Retail Consumer Price Index (CPI) expectations were moderately adjusted, with forecasts anticipating growth at around 1.76%, down from the previous 2.1% reading of 1.55%, which is the lowest since June 2017. The RBI has revised its inflation predictions for the current fiscal year from 3.7% to 3.1%.
- The easing inflation pressure in India suggests a slowdown in consumer demand, coinciding with a reduction in US tariffs expected to impact domestic production.
- According to Union Minister Pankaj Chaudhary, reported in Hindustan Times, approximately 55% of India’s total goods exports will be affected by recent tariff agreements.
- Last week, President Trump raised tariffs on imports from India to 50% linked to oil purchases from Russia. Meanwhile, US Treasury Secretary Scott Bescent stated that trade negotiations with India seem to have stalled.
Technical Analysis: USD/INR Near 87.65
The USD/INR pair has dipped to about 87.65. Nonetheless, the overall trend in the short term remains bullish with the 20-day exponential moving average (EMA) situated around 87.30.
The 14-day relative strength index (RSI) is fluctuating in the range of 60.00-80.00, indicating robust bullish momentum.
Looking ahead, the 20-day EMA acts as crucial support for the currency pair, while the peak on August 5th, around 88.25, presents a significant resistance point.
