Due in part to a minor increase in the offshore Chinese yuan and a decline in the dollar index, the Indian rupee ended the day on Wednesday slightly higher. After closing at 83.15 in the previous session, the rupee closed at 83.1225 versus the US dollar. The dollar index fell 0.4% to 103.07, and the majority of Asian currencies experienced weakness. After the country’s central bank said that it will reduce the amount of cash that banks must retain as reserves to support the economy, the offshore Chinese yuan saw a 0.1% increase.
The currency has declined over the past week, trading between 83.0575 and 83.18 after peaking at 82.77 on January 15th. This decline has been attributed to pressure from equity-related outflows and a reduction in expectations of rapid U.S. rate cuts.
According to CME’s Fed Watch tool, investors are almost evenly divided on whether the Federal Reserve will lower rates at its policy meeting in March, which is a significant change from the odds of more than 75% in late December. Before the Fed makes its policy decision later this month, the rupee is not expected to witness significant swings on either side, according to a foreign exchange dealer with a foreign bank. Most market participants believe that the Fed will hold its interest rates steady during the meeting.
The trader continued, “Even then, I don’t think it will move much unless the Fed is surprisingly dovish or hawkish. Investors will be watching the carefully anticipated core personal consumption expenditure (PCE) inflation data due on Friday and the U.S. GDP data due on Thursday before the Fed meeting.
