Rupee Holds Steady Despite Dollar Demand, Fed Focus

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RUPEE ENDS STEADY DESPITE INTRADAY GAINS

The Indian rupee closed little changed on Tuesday, despite reaching its highest level in nearly three weeks during the session, as demand for dollars from state-run banks, possibly for importer clients, offset the local unit’s gains.

Numeric Detail: The rupee (USDINR) concluded at 82.97 against the U.S. dollar, showing minimal deviation from its previous close of 82.9625.

INTRADAY MOVEMENTS: The local currency saw an intraday high of 82.8750 before relinquishing some gains towards the end of the session.

DOLLAR INDEX AND ASIAN CURRENCIES: The dollar index saw a slight increase to 104.14, while most Asian currencies experienced gains, particularly the Thai baht and Korean won, which both rose by approximately 0.3%. Similarly, the offshore Chinese yuan reached its highest level in almost three weeks before retracing gains.

Factors Eroding Rupee’s Gains: Dip-buying interest in the dollar-rupee pair from importers and speculators tempered the rupee’s gains on Wednesday, according to a foreign exchange trader.

NEAR-TERM OUTLOOK: Jay Shah, FX research at Markets with ForExim, suggests that the rupee is unlikely to deviate significantly from its prevailing range between 82.80 and 83.20 in the near term.

Focus on Fed Minutes and Rate Expectations: Investors eagerly await the release of the minutes from the Federal Reserve’s January meeting, particularly following the central bank’s meeting in January and the continued strength in U.S. economic data.

Key Takeaways:

  1. The rupee remained steady despite reaching intraday highs, as dollar demand from state-run banks offset gains.
  2. Market participants are closely monitoring the Fed minutes and rate expectations, with reduced bets on aggressive rate cuts by the Fed in 2024.
  3. Remarks from Fed officials later in the day are expected to provide insights into future rate trajectory.