• Indian Rupee (INR) weakens even as equities hit record highs
  • RBI unlikely to react to higher inflation
  • US Dollar (USD) edges lower versus majors with FOMC in focus
  • US retail sales to show -0.8% decline

The US Dollar Indian Rupee (USD/INR) exchange rate is rising on Tuesday paring losses from the previous session.  The pair settled -0.08% lower on Monday at 73.18. At 11:00 UTC, USD/INR trades +0.2% higher at 73.32.

The Rupee trades under pressure despite domestic equities surging to a record high. Both the Sensex and the Nifty 50 were approaching then end of the session 0.4% higher.

The Reserve Bank of India is not expected to react to multi month high retail inflation. India’s economic recovery remains the prime focus. The fact that the rise in inflation isn’t driven by dremand gives the RBI some wiggle room.

Indian’s GDP grow 1.6% in the March quarter compared to the previous year. However, that was before the second wave of covid and the lockdowns which followed.

Looking ahead, attention will turn to India’s balance of trade for May.

Oil prices are edging higher again amid demand outlook optimism and as the prospect of Iranian oil returning to the market fades. Talks between Iran and the US over the revival of the 2015 nuclear deal are progressing slowly.

The US Dollar is trading higher versus the Rupee. However, it is trading flat versus its major peers. The US Dollar Index, which measures the greenback versus a basket of major currencies trades -0.02% at the time of writing at 90.50.

The US Dollar is treading water as investors wait cautiously for tomorrow’s Federal Reserve monetary policy announcement. Expectations are for the Fed to remain accommodative even though inflation jumped to a 12 year high of 5% in May.

However, the labour market recovery is slower. The past two non farm payrolls have disappointed, coming in weaker than forecast.

Bond yields fell sharply lower last week and remain depressed trading at 3 month lows. This suggests that the market isn’t concerned about inflation or expecting the Fed to move to raise rates soon.

Attention now turns to US retail sales data which is expected to show a -0.8% month on month decline.