• Indian Rupee (INR) advances thanks to weaker US Dollar
  • Economists remain downbeat on India’s economic outlook
  • US Dollar (USD) drops ahead of Federal Reserve rate decision
  • No change in policy expected although dovish tone to remain as covid cases continue to rise

Following two straight days of gains the US Dollar Indian Rupee (USD/INR) exchange rate is drifting lower on Wednesday. The pair gained 0.2% over the past two sessions settling on Tuesday at 74.90. At 10:15 UTC, USD/INR trades -0.3% at 74.70 as it remains within a familiar range.

The US Dollar dived to a two year low versus a basket of currencies which is helping to support the Indian Rupee even as a poll of economists paint a grim picture for India’s economic outlook.

The outlook for the weakening economy has worsened as business activity slumps and coronavirus infections soar according to a poll of economists for Reuters. Expectations are also for the Reserve Bank of India to cut interest rates again.

The opinions supported recent criticism of the $266 billion rescue package which doesn’t include tax breaks, new spending or cash support. Everything is pointing towards the fact that more will be needed to be done to turn India around.

In the most recent quarter India’s GDP is expected to have contracted -20%. In the current fiscal year, the Indian economy is expected to have shrunk -5.1%.

The poll comes as coronavirus cases in India surge by 47,000 new daily cases, taking the total to 1.5 million.

The US Dollar is under pressure on Wednesday as sellers remain in control. Concerns that rising US coronavirus cases are hampering the fragile economic recovery is dragging on the greenback. The fact that the Democrats and Republicans in Congress can’t agree to a fresh stimulus package is also unnerving investors.

Attention now will turn to the Federal Reserve monetary policy announcement. The Fed are not expected to take any action today. After dozens of support programmes since March/ April the central bank is waiting to see what happens. Given the deteriorating picture, the Fed will almost certainly stick with a dovish tone.