• Indian Rupee (INR) falls in risk off-trade
  • The RBI could front-load rate hikes more aggressively
  • US Dollar (USD) briefly rises to a 20-year high
  • US non-farm payroll data due

The US Dollar Indian Rupee (USD/INR) exchange rate is rising on Friday, rising for a second straight day. The pair settled +0.7 higher on at 76.54 on Thursday. At 11:30 UTC, USD/INR trades +0.31% at 76.78. The pair is on track to gain 0.36% this week, its fourth straight week of gains.

The Rupee is trading domestic equities lower as concerns over inflation and a hawkish Federal Reserve hit risk appetite.

India’s central bank is expected to act more aggressively to rein in inflation after the Fed hiked rates. The RBI is likely to front-load interest rate raises aggressively. Analysts are now forecasting 125-150 basis points of rate hikes over the coming 12 months, up sharply from just 50 basis points expected three months earlier.

The US Dollar is rising versus the Rupee but falling versus its major peers. The US Dollar Index, which measures the greenback versus a basket of major currencies, trades -0.3% at the time of writing at 101.45, after briefly rising to a 20-year high of 104.06.

The USD shot high in the previous session, recouping losses after the Federal Reserve meeting. While Federal Reserve Chair Powell said that the Fed would not consider a 75 basis point rate hike in the upcoming Fed meeting, the market wasn’t so sure. Fears over rising inflation, stagflation, and a more hawkish Fed sent US treasury yields back over 3%, and the US Dollar traced yields higher.

Now, attention is turning to the US non-farm payroll report, which is expected to show that 390,000 jobs were added in April, down from 431,000 recorded in March. Unemployment is expected to hold steady at 3.6%, and wages are forecast to tick higher to 5.6%. A strong jobs report could help lift the US dollar index back to a 20-year high.