Rupee May Not Build on Recovery Despite Renewed Fed Rate-Cut Hopes

Non-deliverable forwards indicate that the Indian rupee is unlikely to continue its recovery on Thursday, despite renewed hopes that the U.S. Federal Reserve may cut interest rates this quarter.
The one-month non-deliverable forward indicated that the rupee would open at 86.40 to the U.S. dollar, compared to 86.3625 in the previous session.
The local currency had its best day in more than seven months on Wednesday, ranking among the top-performing Asian currencies, helped by a narrower-than-expected merchandise trade deficit in December.
However, the rupee is unlikely to rise further due to underlying economic concerns, fluctuating oil prices, and the ever-present risk of U.S. tariffs, according to a currency trader.
U.S. Treasury yields fell, equities rallied, and the dollar dipped after an inflation gauge showed a slowdown. The U.S. core consumer price index (CPI) rose 0.2% month on month in December, below the 0.3% expected by economists.
Morgan Stanley noted that the CPI report could boost the Fed’s confidence in lowering rates in March, with futures markets pricing in a higher probability of a rate cut.
Asian currencies gained some relief, but MUFG Bank warned this could be a temporary reprieve amidst potential U.S. tariff hikes.