inr-bank-notes - INR
  • Indian Rupee (INR) falls sharply on the hawkish Fed
  • Indian’s recovery from the second wave expected to be slower
  • US Dollar (USD) surges to 2 month high
  • Fed look to hike rates twice in 2023

The US Dollar Indian Rupee (USD/INR) exchange rate is surging higher on Thursday paring mild losses from the previous session. The pair settled -0.11% lower on Wednesday at 73.27. At 11:00 UTC, USD/INR trades +1.15% higher at 74.10, a six-week high.

According to investment bank UBS, the lockdowns imposed on India to contain the second wave of covid are likely to result in the economy contracting by 12% in the June quarter, against a 23.9% contraction in the same period last year. FY21 saw the country experience its worst economic contraction on record of 7.3% owing to the pandemic.

Analysts at the bank expect a pick-up in economic activity as pandemic restrictions ease. However, they also forecast that the recovery won’t gain traction until the second half of the year.

Elsewhere Indian equities closed lower and oil prices slipped slightly owing to the stronger US Dollar

The US Dollar is trading higher across the board. The US Dollar Index, which measures the greenback versus a basket of major currencies trades +0.65% at the time of writing at 91.72 a two month high.

The US Dollar is surging higher after the US Federal Reserve surprised the market by signaling that two interest rate hikes might take place in 2023. This was a significant change of thinking from the last Fed meeting when no policy maker was in favour of hiking before 2024. 7 policymakers out of 17 were even in favour of hiking interest rates in 2022.

The Fed pointed to an improved economic outlook as the reason for accelerating the path to monetary policy normalistaion. The US central bank upgraded its growth outlook for the year to 7% and also upgraded the inflation forecast.

Attention will now turn to the US weekly jobless claims which are expected to fall to a fresh pandemic low of 359,000, down from 376,000. A strong print could boost the US Dollar further.