- Indian Rupee (INR) falls due to multiple factors
- RBI rate decision is due tomorrow
- US Dollar (USD) falls versus major peers
- All eyes are on tomorrow’s inflation data
The US Dollar Indian Rupee (USD/INR) exchange rate is moving higher on Wednesday, adding to gains in the previous session. The pair settled +0.09 higher on Tuesday at 74.69. At 11:30 UTC, USD/INR trades +0.11% at 74.78.
The Rupee is edging lower as investors await the Reserve Bank of India’s monetary policy decision tomorrow. High crude oil prices in addition to monetary policy tightening in other markets and the potential rate hike by the US Federal Reserve are weighing on demand for the currency.
The government last week announced plans for record borrowing in the coming fiscal year to support growth in India. Traders believe that the RBI, which had prioritised growth over containing inflation, can now focus on bring inflation back in line.
Retail inflation rose to a five-month high of 5.59% in December compared to a year earlier. Wholesale prices, inflation at factory gate level, rose 13.56%
The US Dollar is rising versus the Rupee but is falling versus its major peers. The US Dollar Index, which measures the greenback versus a basket of major currencies trades +0.16% at the time of writing at 95.50 paring yesterday’s gains.
The US Dollar rose yesterday amid rising inflation expectation and growing beliefs that the Federal Reserve could adopt a more hawkish approach to monetary policy. US 10-year treasury yields rose to the highest level since November 2019, lifting the US Dollar.
The economic calendar has been quiet over the past few days, leaving investors glued to tomorrow’s inflation data for clues over where the Fed could go with monetary policy and how quickly the US central bank will look to hike rates. High inflation could fuel bets that the Fed will raise interest rates by 50 basis points in March, rather than 25 basis points, in order to slow 4-decade high inflation.
Today there is no high impacting US data. Investors could watch Fed official Mester for clues on the Fed’s next move.
