The Indian rupee is likely to open slightly higher on Thursday, tracking gains in most of its Asian peers, after Federal Reserve Chair Jerome Powell hinted at the possibility of a rate cut in September.
Non-deliverable forwards indicate the rupee will open at around 83.69-83.70 to the U.S. dollar, compared its close at 83.72 in the previous session.
The currency had slipped to a record low of 83.7450 on Wednesday, extending a string of declines seen over recent trading sessions on account of outflows from local equities and persistent dollar bids from local importers.
The rupee is expected to recover slightly on Thursday but potential upside is likely to be capped near 83.63-83.65, a foreign exchange trader at a private bank said.
“While the Fed decision takes off the pressure on the rupee, strong inflows will be key to push it higher,” the trader added.
The Fed kept policy rates unchanged on Wednesday but Chair Powell in his remarks said that interest rates could be cut as soon as September.
“If we were to see inflation moving down … more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” he said.
The dollar index was at 104 after dropping 0.4% on Wednesday and U.S. bond yields eased, with the 10-year yield touching a low of 4.03%, its lowest level since February.
Interest rate futures are now pricing in nearly three rate 25 basis point (bps) rate cuts in 2024.
“Fed likes what it sees with disinflation and a still solid economy, so it has set the stage for dialling back restrictive monetary policy,” Lloyd Chan, senior currency analyst at MUFG Bank, said in a note.
