Rupee Holds Steady Amidst Regional Currency Strength and Local Dollar Demand Pressures

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The Indian rupee concluded Thursday with minimal change, despite the resilience shown by its Asian counterparts. Initially bolstered by the U.S. Federal Reserve’s decision to maintain policy rates and its 2024 dot plot, the rupee’s early gains were eroded by local dollar demand throughout the day. Closing at 83.1475 against the U.S. dollar, the rupee’s final figure scarcely differed from its previous session’s close at 83.1575.

Although the currency briefly surged to an intraday high of 83.0475, it relinquished those gains later on. According to a foreign exchange trader at a state-run bank, corporate dollar demand and outflows for debt repayment exerted pressure on the rupee throughout the day. While most Asian currencies experienced gains, with the Korean won leading with a 1.3% increase, the dollar index managed to claw back some of its losses from Wednesday, marking a 0.2% rise and standing at 103.43 in the latest update.

The Fed’s decision to maintain rates unchanged and uphold its projection for three interest rate cuts over 2024 was announced on Wednesday. Despite unexpected increases in U.S. inflation data for January and February, Fed Chair Jerome Powell emphasized a gradual decline in inflation, albeit with occasional fluctuations.

Following the Fed’s policy announcement, the likelihood of a rate cut in June rose to approximately 74%, up from 59% a week earlier, according to CME’s FedWatch tool. Meanwhile, dollar-rupee forward premiums saw an increase, with the 1-year implied yield rising by 2 bps to 1.63%, supported by a decline in U.S. bond yields. Although the rupee seems to have shifted towards a slightly weaker trajectory, analysts like Dilip Parmar, a foreign exchange research analyst at HDFC Securities, predict that it is unlikely to dip below 83.30 in the near future.

Investors are now awaiting the release of U.S. jobless claims data later in the day for further market insights.