BENGALURU: The Indian rupee is expected to open higher on Wednesday after US inflation data reaffirmed views that the Federal Reserve will likely keep interest rates unchanged in June.

Non-deliverable forwards indicate the rupee will open at around 82.22-82.24 to the US dollar, compared with 82.3675 in the previous session.

The consumer price index (CPI) showed an annual increase of 4% in May, slowing from 4.9% in April.

Data earlier this month offered a mixed picture of the US labor market, while some Fed officials have called for a pause. Post the CPI data, the odds of a Fed rate hike in June have fallen to 8% from 25% on Tuesday.

Indian rupee likely higher; awaits pivotal US inflation data, eyes yuan

The dollar index hovered close to an over three-week low hit on Tuesday, while the two-year US yield dropped slightly in Asia after rising to its highest since March 10. “We think it will be a hawkish pause as the Fed emphasizes that the hiking cycle might not be done.

Whether the pause turns into a skip will depend on incoming data,“ DBS analysts said in a note.

The risk sentiment remained robust, with the S&P 500 and Nasdaq reaching their highest closes in 14 months on Tuesday.

Meanwhile, the offshore Chinese yuan remained under pressure against the dollar after dropping to a new low since November on Tuesday.