MUMBAI: The Indian rupee declined against the U.S. dollar on Tuesday, weighed down by losses in its Asian peers as Federal Reserve policymakers tempered U.S. rate cut expectations, while demand for the greenback from importers also hurt.
The rupee closed at 83.18 versus the U.S. dollar, down from 83.06 in the previous session.
“Today’s session confirmed what (USD/INR) bears would have feared. That there will not be any follow through to Friday’s drop,” a FX trader at a bank said.
The local unit on Friday posted its best single-day performance in nearly eight months.
Indian rupee posts best day in over 8 months aided by dollar inflows
Importers “might have rushed to buy” following the rally in the rupee, said Amit Pabari, managing director at CR Forex. The downside on the USD/INR will be restricted to around the current 83.15-83.20 level, he added.
The jump in portfolio inflows is expected to help the rupee. Foreign investors have bought $7.7 billion of Indian equities so far this month, the highest monthly value this year.
The rupee’s Asian peers were mostly lower, with the Japanese yen leading the way after the Bank of Japan left policy settings and the forward guidance unchanged.
U.S. Federal Reserve officials once again pushed back against expectations of early rate cuts next year, impacting demand for Asian currencies and assisting the dollar.
Chicago Fed President Austan Goolsbee said the central bank is not pre-committing to cutting interest rates soon. Meanwhile, Fed Cleveland President Loretta Mester said financial markets had got “a little bit ahead” of the central bank on when to expect interest rate cuts, the Financial Times reported on Monday.
Investors have priced in a more than 60% chance that the Fed will cut rates as soon as March next year and a total of 140 basis points of rate reductions in 2024.
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