• Indian Rupee (INR) extends losses for second session
  • Retail inflation +4.59% YoY in December
  • US Dollar (USD) edges a few points higher
  • US inflation expected +0.4% MoM December

The US Dollar Indian Rupee (USD/INR) exchange rate is slipping lower on Wednesday extending losses for a second straight session. The pair settled -0.3% on Tuesday at 73.22. At 11:15 UTC, USD/INR trades +0.06% at 73.17.

Indian inflation eased back in December, owing to falling food prices. The annual retail inflation was 4.59%, down significantly from 6.93% in November. This was the lowest level of inflation since September 2019 and was also below the 5.28% that analysts had forecast. However, it still remains within the central bank’s 2% – 6% target range.

Even so, with growing consumer demand and rising input costs for manufacturers, in addition to rising oil prices headline inflation is expected to remain over 4%. This provides little room for the Reserve Bank of India with policy across the coming year.

The US Dollar is trading a few points higher versus the Indian Rupee. It is also trading a few points higher versus its major peers. The US Dollar index, which values the greenback against 6 major counterparts is trading at 90.13 after having rebounded off session lows of 89.92.

The US Dollar came under pressure after the US Federal Reserve suggested that monetary policy will stay accommadative for now. Since the Democrats won the Senate runoffs in Georgia, expectations for a huge fiscal stimulus have grown, raising the prospect of the Fed tightening policy sooner rather later, lifting the USD.

However, Kansas City Fed President Esther George said that she doesn’t see the Federal Reserve raising rates soon even if inflation exceeded 2%, which pulled the US Dollar lower overnight.

Looking ahead, investors will turn towards US inflation data, as measured by Consumer Price Index. This is due to be released later today. Analysts predict CPI to rise +0.4% month on month in December, up from +0.2% in November. A strong reading could boost the greenback.