- Indian Rupee (INR) drops despite IMF upwardly revising GDP outlook
- Nifty & Sensex plummet almost -2%
- US Dollar (USD) rises ahead of FOMC
- No change to policy expected
The US Dollar Indian Rupee (USD/INR) exchange rate is on the rise on Wednesday, paring losses from the previous session. The pair settled -0.03% lower on Tuesday at 72.94, towards the lower end of the daily traded range. At 11:15 UTC, USD/PKR trades +0.3% at 72.99.
The International Monetary Fund projected impressive 11.5% economic growth for India in 2021. This would make India the only major economy recording double digit growth. However, the Rupee failed to advance on the news after a sharp selloff in domestic equities.
The Nifty and the benchmark Senex both closed just shy of 2% lower and foreign institutional investors were net sellers as they offloaded shares.
The US Dollar is pushing higher across the board. The US Dollar Index which gauges the greenback against 6 major currencies trades +0.25% at the time of writing as investors look ahead to the FOMC monetary policy announcement later today.
The Fed is expected to keep monetary policy unchanged in this meeting, the first meeting under the Joe Biden administration. Attention will be fully focused on Federal Reserve Chair Jerome Powell’s comments in the press conference.
Near term the risks remain tilted to the downside, as covid cases continue to tick higher and businesses struggle amid lockdown restrictions. Analysts expect Jerome Powell will be quick to shut down any talk of the Fed tapering assets purchases and will instead stick to the verse that the Fed will continue with the current pace of bond purchases for the foreseeable future.
However, the outlook is improving for the second half of 2021 with the prospect of additional fiscal stimulus and a ramped up vaccine programme under Joe Biden. An upbeat outlook could indirectly fuel tapering expectations for the second half of the year. This is particularly the case following the IMF upgraded GDP expectations for the US yesterday.