On Thursday, the Indian rupee edged higher, influenced by expectations of a U.S. Federal Reserve rate cut. Analysts anticipate this factor to contribute to a potential rally in the currency in 2024.
As of 11:10 a.m. IST, the rupee quoted at 83.2650 against the U.S. dollar, a slight increase from Wednesday’s 83.3450. The boost was attributed to the dollar index’s decline to 101.76 and an uptick in Asian currencies.
Despite a 0.7% year-to-date decline, marking a sixth consecutive annual dip, some analysts foresee a turnaround in 2024. Capital Economics expressed optimism, stating that the anticipated more aggressive U.S. Fed rate cuts next year could lead to rupee strengthening against the dollar. They project a climb to 78 against the dollar by the end of 2024.
The market currently reflects expectations of approximately six Fed rate cuts in 2024, driven by slowing inflation and growth. In contrast, the central bank has forecasted only three cuts. Analysts emphasize that the performance of the rupee and other emerging market currencies in 2024 will depend significantly on the trajectory of the Fed’s easing cycle compared to market expectations.
According to an analyst from a private sector bank, the rupee has not yet mirrored the dollar’s decline based on the current Fed outlook, but this dynamic could change in 2024. While he did not specify a target, he suggested a minimum of 2% to 3% appreciation could be on the horizon.
The outlook hinges on the evolving narrative of the Fed’s policies, with potential implications for the rupee’s performance in the coming year. As the global economic landscape continues to shift, the rupee’s trajectory remains subject to various external factors, particularly the Fed’s stance on interest rates and its impact on currency markets.
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