• Indian Rupee (INR) falls despite inflation forecasts rising
  • CPI is expected to tick higher in January
  • US Dollar (USD) rises on hawkish Fed commentary
  • US consumer confidence data is due

The US Dollar Indian Rupee (USD/INR) exchange rate is rising on Friday after two straight days of losses. The pair settled -0.17% lower on Thursday at 82.51. At 11:00 UTC, USD/INR trades +0.09% at 82.58. The pair is set to gain 0.4% across the week, marking its third straight week of gains.

Expectations are for India’s retail inflation to rise slightly in January off a 12-month low hit in December. Still, they remain within the Reserve Bank of India’s target range for a third straight month.

Inflation went above the 6% upper limit for the Reserve Bank of India’s tolerance level for the first ten months of last year but fell below this level in the final two months of 2022 thanks to a full in food inflation.

However, higher food prices reversed the trend at the start of this year. The Indian rupee also dropped over 10% against the US dollar last year, which adds to imported inflationary pressures.

Analysts are forecasting that inflation, as measured by CPI, will rise to 5.9% in January, up from 5.72% in December.

The US Dollar is rising across the board. The US Dollar Index, which measures the greenback versus a basket of major currencies, trades +0.18% at the time of writing at 103.42 after losses yesterday. The USD is set to rise across the week in its second straight week of gains.

The US dollar is heading higher on the final day of the week and is set to post its second straight week of gains as traders continue digesting a slew of speeches from Federal Reserve policymakers.

Federal Reserve speakers, including Jerome Powell, have been hawkish this week, reiterating the need to raise interest rate further. Richmond Federal Reserve president Thomas Barkin was the latest to speak, noting that demand was slowing but still resilient and the labour market still healthy, which means that inflation is still elevated and requires further action from the Fed.

Attention will now turn to US Michigan consumer sentiment, which is set to rise slightly to 65 in February, up from 64.5 in January.