The Indian rupee is expected to receive a boost on Monday from the increasing probability that the U.S. Federal Reserve will deliver a 50-basis-point rate cut in the week.
The 1-month non-deliverable forward indicated that the rupee will open flat-to-slightly-higher to the U.S. dollar from 83.8875 in the previous session. The rupee, for well over a month, has been locked in a near 2 paisa range.
“The significant uncertainty on what the Fed will do makes this week a potentially volatility one (for world markets),” a currency trader at a bank said.
“However, will that translate to (dollar/rupee) making a new range? I doubt that.”
The way the Fed expectations are shaping up leading into the decision, the risks on the dollar/rupee pair are on the downside, he said.
The Fed on Wednesday is widely expected to kick off its rate cut cycle amid slowing inflation and a cooling off in the labour market. What is not certain is whether the Fed will cut rates by 25 basis points or 50 basis points.
The odds of what it will be have seen quite a bit of choppiness. Following the U.S. non-farm payrolls data and the inflation report, investors had almost priced out a 50 bps cut.
However, a couple of media reports that Fed officials were mulling a 50 bps cut has prompted investors to have a rethink. In fact, the probability of a 50 bps is now higher than of a 25 bps.
“There are good arguments for and against the Fed being more proactive, HSBC Bank said in a note.
It “should be clear” what the Fed’s decision “means for the broad USD“, HSBC said. The Fed taking a cautions course towards cuts should see the USD recover, it said.
