MUMBAI: The Indian rupee may drop to a record low at the open on Thursday despite Federal Reserve Chair Jerome Powell’s indication that there was room for rate cuts this year, which triggered a drop in the dollar index.

Non-deliverable forwards indicate the rupee will open at around 83.46-83.48 to the US dollar compared with 83.4350 in the previous session and weaker than the 83.45 record low hit last Wednesday. The dollar index dropped through the European and US trading sessions on Wednesday.

For the rupee right now “it is not about what the dollar is index is up to”, a forex trader at a bank said.

“All through yesterday, we saw persistent dollar demand and when you are this close to making a new lifetime high (on USD/INR), there is bound to be a lot of nervousness.”

The dollar demand on Wednesday was attributed by most traders to oil companies and other importers.

One trader said that it was possible that position squaring in dollar/rupee currency futures was impacting spot.

Meanwhile, Powell on Wednesday said that “if the economy evolves broadly” along expected lines, he and his Fed colleagues largely agree that a lower interest rates will be appropriate “at some point this year.”

The dollar, which was already under pressure from weaker-than-expected US services data, dropped further following Powell’s comments.

Indian rupee ends at record closing low

“The Fed still seems likely to make its first rate cut in June,” Angeline Ong, an analyst at broker IG, said. Fed Funds futures are currently pricing in a near 60% probability of a rate cut in June and markets see a total of three cuts this year.

Atlanta Fed President Raphael Bostic view was at odds with the market pricing. He reiterated the Fed should only reduce borrowing costs once over the course of 2024.