The Indian rupee strengthened today, posting its biggest weekly gain in two months, as a benign US inflation reading boosted expectations of an interest 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 recent closing at 81.55.
It was the best week for the local currency since the weekend of November 11th, as it rose around 1.7% after breaking out of a narrow trading range.
Public sector banks are likely to buy the dollar around 81.30 levels on Friday, which indicates that 81.20 may remain a resistance level for the rupee in the near term, according to a trader at a private bank.
Traders also noted that the current levels are attractive for importers to jump to.
The rupee and other Asian currencies advanced while the dollar index extended its losses to 102.00 levels after US inflation data.
US consumer prices fell on a monthly basis for the first time in more than two and a half years in December, raising hopes that the Federal Reserve may raise interest rates by 25 basis points next month.
Fed funds futures now show a chance of close to 9% for a further rate hike.
However, not everyone was convinced that the Federal Reserve would raise interest rates in line with market expectations and this could lead to fluctuations in the rupee.
“We wouldn’t rule out a retest of the 83 per dollar level during the first quarter,” said Vivek Kumar, an economist at Quantico Research, who predicted a Fed hike of 50 basis points.
Kumar added that India’s wide current account deficit will also remain one of the main reasons for the weakness of the rupee.
Meanwhile, rupee forward premiums rose, tracking the decline in Treasury yields. The one-year implied yield rose to 2.26%, its highest level since November 2022, as traders said PSU banks were bidding.
Over the course of the week, the one-year yield was up about 21 basis points.
(Except for the headline, this story was not edited by the Alendronaterx staff and was published from a syndicated feed.)
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