USD/INR: Rupee Gains after Fed Promises to “Act as Appropriate”

The US dollar is lower against the Indian rupee on Monday morning with markets now pricing in imminent interest rate cuts in the United States to respond to the coronavirus outbreak which has now claimed the lives of more than 3000 people globally.

USD/INR was down by 21 pips (+0.64%) to 72.109 with a daily range of 71.655 to 72.272 as of 10.30am GMT. The currency pair hit a 5-month peak above 72.5 but has since pulled back to 72, which has twice acted as support to the price. Last week the USD/INR exchange rate rose +0.92%.

INR helped by a drop in the dollar and rebound in global stock markets

The wave of risk-off sentiment that struck markets at the end of last week saw the Indian rupee knocked to its lowest in five months. But a drop in the dollar and rebound in global stock markets including the Nifty and BSE Sensex has helped emerging market currencies, including the rupee, retake some lost ground.

The rupee remains a relative outperformer amongst emerging market currencies thanks to its low reported number of coronavirus cases, the drop in oil prices and the distraction from a state visit by US President Donald Trump. Trump and Indian Prime Minister importantly maintained their good relations but announced no major cooperation in security or trade. The consensus view among market-watchers is that the US will try to strike a trade deal with India next year if Donald Trump is re-elected in November.

The dollar

An unusual press release from the US Federal Reserve on Friday, seemingly aimed at calming down markets did just that, causing the dollar to fall and stock markets to rebound. Fed Chair Jerome Powell said the Fed would “act as appropriate” to mitigate any economic consequences from the coronavirus. Investors have interpreted the statement as being as good as saying the Fed plans to cut interest rates in March without saying it.

Before the statement, bond yields had dropped to all-time lows in the expectation that the Federal Reserve would be forced to lower interest rates in response to COVID-19. The US President also weighed in on Friday, saying he hoped the Fed would cut interest rates.

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