In the early hours of Tuesday, the Indian rupee decline was evident as it experienced a noteworthy downturn, influenced by the resurgence of the dollar index and a corresponding downturn in its Asian currency counterparts.
As of 8 AM, the South Asian currency was quoted at 82.80 against the US dollar (equivalent to 22.56 against the UAE dirham), marking a significant slip from Monday’s rate of 82.74 (22.54 against dirham).
Unraveling the Indian Rupee Decline Amidst Dollar Index Strength
The dollar index showed resilience in the Asian market, efficiently recouping a substantial portion of the losses it had previously incurred subsequent to the release of US jobs data. This recovery had a cascading effect, leading to a range of 0.2 to 0.6 per cent declines in various Asian currencies. Notably, the offshore Chinese yuan experienced a slide, reaching a value of 7.2250 in relation to the dollar.
A forex trader at a banking institution emphasized, “Given the dip in Asian currencies, we are now closely monitoring the interbank rates with a keen focus on public sector banks.”
The Reserve Bank of India‘s persistent efforts to curtail the Indian rupee decline beyond the 82.80-83 range have been notable. The significance of the 82.80-83.00 territory was underscored, with the trader emphasizing that breaching the 83 mark could trigger significant stop losses and further intensify the currency decline.
The dollar’s noteworthy advancement was bolstered by statements from Fed Governor Michelle Bowman, who indicated the likelihood of further interest rate hikes to effectively mitigate inflation and bring it in line with the U.S. Federal Reserve’s target of 2 per cent.
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Market anticipation is firmly centered around the forthcoming US inflation data, scheduled for release on Thursday. This data is expected to be pivotal in shaping the Fed’s future outlook. Experts surveyed by Reuters project a 0.2 per cent month-on-month increase and a 4.8 per cent year-on-year surge in the core consumer price index. The implications of these figures cannot be overstated as they could influence the Indian rupee decline.
ANZ, in their analysis, noted, “Given the ongoing robust demand for labor and lingering inflationary pressures, the Fed remains cautious about potential upward risks to inflation. The consensus among policy makers suggests that a restrictive policy rate will be necessary for an extended period to restore inflation to the target level.”
In this landscape, the prevailing sentiment suggests that the Federal Reserve’s efforts to manage inflation may not be concluded yet, and this is expected to have a significant impact on the ongoing Indian rupee decline.
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