The Indian rupee displayed strength on Friday, closing higher against the U.S. dollar, buoyed by dollar sales from foreign banks. However, this marked the end of a two-week winning streak as a moderation in U.S. rate cut expectations and equity-related outflows exerted pressure on the local unit earlier in the week.
The rupee concluded the day at 83.0650 against the U.S. dollar, marking a modest 0.07% increase from its previous closing of 83.1225. Despite the day’s positive performance, the local currency recorded a weekly decline of 0.17%.
Among Asian currencies, most experienced marginal gains, with the offshore Chinese yuan leading the pack with a rise of more than 0.2%. Although the dollar index edged lower to 103.34, it appeared poised to secure a weekly gain.
While the rupee meandered within a narrow range throughout much of Friday’s session, it experienced a late uptick, supported by dollar sales from foreign banks, as noted by a foreign exchange trader at a private bank. Earlier in the session, state-run banks were observed bidding for dollars, likely on behalf of importer clients, adding an interesting dynamic to the day’s forex activity.
The recent movement of the rupee has been significantly influenced by inflows and outflows, contributing to a choppy trend that may persist in the near term, according to Anindya Banerjee, Head of Foreign Exchange Research at Kotak Securities.
A reassessment of rate cut expectations in the United States supported the dollar earlier in the week, leading to an increase in U.S. bond yields, supported by robust U.S. economic data. The 10-year U.S. Treasury yield rose to 4.14%, indicating a 19 basis points increase for the week.
Investors are currently recalibrating their expectations, with a 55% chance of a Fed rate cut in March, down from about 73% a week earlier, according to CME’s FedWatch tool. ING Bank shared their perspective, stating, “Markets remain attached to the prospect of a March cut… but we really struggle to imagine the Fed cutting in two months’ time against the current economic backdrop.”
As the global economic landscape continues to evolve, the resilience of the Indian rupee in the face of external factors remains a focal point for market observers.