Rupee Under Pressure: Challenges for India's Currency on the Horizon
- Rising US Treasury yields weigh on the Indian Rupee.
- The intervention of the Indian central bank meets both domestic and global challenges.
Eulerpool News·
The Indian rupee could come under increasing pressure at the start of the week. After a slight recovery at the end of last week, rising yields on US Treasuries are cause for concern. Experts expect the rupee's opening exchange rate to be between 84.82-84.83 against the US dollar, representing a minimal change compared to the previous closing rate of 84.7875.
On Friday, the rupee was able to gain 0.1%, attributed to suspected dollar purchases by the central bank and possible capital inflows. Traders describe this recovery as a respectable performance given the ongoing pressure. Nevertheless, the rupee will continue to contend with the forces of a dollar-friendly environment, which analysts see as a challenge.
At the beginning of the week, Asian currencies were pressured by US Treasury yields. The 10-year US bond yield, in particular, rose by seven basis points last Friday and a total of 25 basis points over the week. Analysts attribute this development to concerns regarding inflation-related uncertainties and the US deficit, caused by the policies of the designated president Donald Trump.
This week, attention is focused on the US Federal Reserve's monetary policy decisions, expected on Wednesday. While a cut of 25 basis points has already been fully priced in, investors will closely monitor the outlook for the next year. According to an announcement from ING Bank, the Fed plans to signal a more cautious profile for its interest rate policy until 2025. Instead of four rate cuts, only three are now being projected.
At the same time, India's foreign exchange reserves have dropped to their lowest level in several months, due to dollar sales by the central bank to support the rupee. However, the intervention by the Reserve Bank of India is being complicated by both domestic and global challenges.
Key Indicators:
- One-month non-deliverable forward of the rupee at 85.00; premium for the onshore one-month forward at 16.5 paisa
- According to NSDL data, foreign investors sold net Indian equities worth USD 419.9 million on December 12
- According to NSDL data, foreign investors sold net Indian bonds worth USD 35.6 million on December 12 Modern Financial Markets Data
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