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MUMBAI: The Indian rupee strengthened against the dollar on Thursday as a softer-than-expected US inflation reading reduced bets of another 75 basis points (bps) rate hike from the Federal Reserve.

The currency was trading at 79.37 per US dollar by 0511 GMT, compared with 79.52 in the previous session. It had opened at 79.25.

“After the opening dip (on the USD/INR), market participants are basically feeling out how much upside is there in the rupee on the back of US inflation relief,” a trader at a state-run bank said.

“We reckon a lot will depend on how much of the moves on the dollar index and on global equities sustain.”

Other Asian currencies also rose after US consumer prices rose 8.5% in July from a year earlier, down from 9.1% in the previous month and below 8.7% expected by economists polled by Reuters. On a month-on-month basis, prices were unchanged.

Following the data, the odds of a 75 bps rate hike by the Fed at the September meeting declined. Its probability at the Sept. 20-21 meeting is now down nearly to the same levels as prior to the robust US jobs report last Friday. The Fed had raised by rates by 75 bps at the June and July meetings.

Indian rupee strengthens above 79.50 on dollar inflows; US data eyed

The dollar index dropped more than a percent on Wednesday and Treasury yields retreated. The 2-year Treasury yield at one point fell to near 3.08%.

Indian shares, meanwhile, tracked an overnight rally on Wall Street. The BSE Sensex reached its highest level since April.

USD/INR futures declined, while the open interest was largely unchanged. The implied yield on 1-year rupee forward premiums inched higher to 3.05%, tracking the decline in US yields.

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