The Indian rupee concluded the week on a weaker note, succumbing to persistent dollar demand from importers, notably local oil companies, market analysts reported.
Closing at 83.0350 against the U.S. dollar on Friday, the rupee experienced a slight depreciation of 0.1% compared to its previous close at 82.9550. This modest decline also translated into a marginal weekly downturn of 0.1%.
Amidst stable conditions in the dollar index near 104.2, most Asian currencies maintained a rangebound trajectory but faced downward pressure throughout the week. This downward trend was attributed to a moderation in expectations for early rate cuts by the U.S. Federal Reserve.
According to data from CME’s FedWatch tool, the likelihood of the Fed implementing rate cuts in March plummeted to below 20%, while expectations for rate cuts in May dipped to about 60%, down from approximately 73% the previous week.
Additionally, elevated oil prices exerted further pressure on the rupee as Brent crude oil futures surged to a peak of $81.84, registering a 3% increase on Thursday amidst concerns over escalating tensions in the Middle East.
Despite these challenges, the rupee found some support from dollar sales facilitated by foreign banks, effectively mitigating the extent of its decline over the course of the week, as highlighted by a foreign exchange trader at a state-run bank.
Looking ahead, market participants will closely monitor upcoming inflation data releases in both India and the United States, with a particular focus on the latter as it is anticipated to provide significant cues for the rupee’s trajectory. Economists polled by Reuters project that month-on-month core consumer price inflation in the United States remained steady at 0.3% in January.
Abhilash Koikkara, head of forex and rates at Nuvama Professional Clients Group, noted that the overall price action on the rupee remains lackluster. While movements in the dollar index spurred by U.S. inflation data could impact the rupee, Koikkara suggested that the currency is likely to maintain its current range without significant deviations.
As the rupee navigates through ongoing challenges and external factors, market sentiment remains cautious, with investors closely monitoring developments both domestically and internationally for potential impacts on currency movements in the coming weeks.
