Bombay:
The Indian rupee strengthened today and posted its biggest weekly gain in two months as favorable inflation data in the US bolstered expectations of a smaller rate hike by the Federal Reserve next month.
The rupee ended the session at a one-month high of 81.3250 per dollar, compared to its last close of 81.55.
This was the best week for the local currency since the weekend ending Nov. 11, gaining around 1.7% after breaking out of a narrow trading range.
Public sector banks (PSU) likely bought dollars around the 81.30 level on Friday, suggesting that 81.20 could remain a resistance level for the rupee in the near term, a trader from a private bank said.
Dealers also called current levels attractive for importers to jump into.
The rupee and other Asian currencies rose as the dollar index extended losses to 102.00 levels due to US inflation data.
US consumer prices fell on a monthly basis for the first time in more than 2.5 years in December, raising hopes that the Fed could raise rates by a smaller 25 basis points (bps) next month.
Fed fund futures now show a near 9% chance of a larger rate hike.
However, not everyone was convinced that the Fed would raise rates in line with market expectations, which could cause volatility in the rupee.
“We are not ruling out a retest of the 83 per dollar level in the first quarter,” said Vivek Kumar, an economist at QuantEco Research, who predicted a 50 basis point hike by the Fed.
India’s large current account deficit would also remain one of the main reasons for the rupee’s weakness, Kumar added.
Meanwhile, rupee term premiums rose on the back of a fall in government bond yields. The 1-year implied yield climbed to 2.26%, the highest since November 2022, with traders saying PSU banks were on bid.
For the week, 1-year rates rose about 21 basis points.
(Except for the headline, this story has not been edited by DailyExpertNews staff and is being published from a syndicated feed.)
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