Rising Fed hike bets pressure Indian rupee, oil worries linger
- The Indian rupee is expected to open in the 95.55-95.60 range, per traders, having settled at 95.3775 to the dollar on Friday
MUMBAI: The Indian rupee is expected to open weaker on Monday after investors stepped up bets on a Federal Reserve rate hike at the next policy meeting following hawkish comments by Fed Chair Kevin Warsh.
The Indian rupee is expected to open in the 95.55-95.60 range, per traders, having settled at 95.3775 to the dollar on Friday.
The odds of a Federal Reserve rate hike at the September 15-16 meeting climbed to nearly 60% after Warsh, in a closely watched speech on Friday, said the US central bank would “have work to do” if policymakers failed to find confidence that inflation was heading back to its 2% target.
The comments marked his clearest acknowledgement yet that further rate increases may be needed to ease persistent price pressures. Before his speech, the odds of a hike next month were around 35%.
Chair Warsh struck a more hawkish tone than the broad references to price stability he had made after the Fed meetings, ING Bank said in a note.
It pointed in particular to his comments that price stability is “not self-executing,” inflation is not necessarily mean-reverting, and that it is the Fed’s job to deliver stable prices.
The dollar index and US Treasury yields rose on Friday, while equities sold off. U.S. equity futures pointed to a further decline when markets open on Monday.
The spillover into Asian currencies, however, was muted, with the region’s currencies trading mixed and the biggest moves limited to around 0.2%.
Apart from the Fed-related risks, the rupee will have to contend with Brent crude’s rise to $90 a barrel on Monday after the U.S. attacked an Iranian island in the Strait of Hormuz, drawing retaliation from Tehran.
For the rupee, the market sees 95.70-95.80 as a well-defended zone, with the Reserve Bank of India expected to lean against any move towards those levels, a currency trader at a bank said.