Indian Rupee Stalls Amidst Local Dollar Demand Despite Weakening Dollar Index

The Indian rupee experienced marginal fluctuations on Friday, maintaining stability against the dollar, with a rate of 83.3025 as of 10:55 a.m. IST, scarcely altered from its previous close at 83.33. This steady trend persisted despite the dollar index remaining near its lowest level in four months, slightly decreasing to 101.89 during Asia hours after a 0.9% dip on Thursday.

The recent decline in the dollar can be attributed to the robust performance of the euro and British pound, fueled by statements from the European Central Bank and the Bank of England dismissing expectations of rate cuts in 2024. ECB President Christine Lagarde emphasized, “We did not discuss rate cuts. No discussion, no debate on this issue.”

Although U.S. Federal Reserve Chair Jerome Powell hinted at potential rate cuts, traders noted that the rupee struggled to capitalize on the dollar’s weakness. Importers’ dip-buying interest played a role in capping potential gains, according to market experts.

A foreign exchange trader at a foreign bank suggested a cautious approach: “Will watch for a drop below 83.20 (on USD/INR) to enter a short position. Otherwise, range plays as usual.”

Despite the overall stability, there is optimism for the rupee’s potential gains, with strong support at 83.40 amid favourable global cues, as stated by Amit Pabari, managing director at fx advisory firm CR Forex. Additionally, rupee forward premiums experienced a decline due to profit booking, with the 1-year implied yield lowering by 4 bps to 1.71%.