The Indian rupee will likely open flat to the U.S. dollar on Wednesday after the Federal Reserve Chair warned against cutting interest rates too early.
Non-deliverable forwards indicate the rupee will open mostly unchanged from 83.4850 in the previous session. Asian currencies were muted following Powell‘s comments. “Powell’s comments provided no additional information in a way. That you can make out on Fed rats have not changed at all,” a currency trader at a bank said.
The rupee “will continue its familiar rangebound ways” with U.S. inflation data, due on Thursday, acting as the next key trigger, he said.
Fed Chair Jerome Powell in his testimony to U.S. lawmakers on Tuesday said that while inflation has eased in recent months, a rate cut is not appropriate until the central bank has “greater confidence” that it is headed towards the 2% target.
“Powell’s comments sought to maintain a neutral stance,” and stuck a balanced tone, ANZ Bank said in a note.
The bank said there were subtle nuances in the assessment, particularly referring to Powell’s comment that elevated inflation is not the only risk the economy faces, which it said implies a focus on weakening activity and labour market conditions.
Recent U.S. activity data has been broadly softer than expected, and there are tentative signs that the jobs market may be cooling, with the unemployment rate inching up to a 2-1/2-year high.
Futures are pricing in two rate cuts by the Fed this year, unchanged from prior to Powell’s testimony.
