The Indian rupee saw a marginal increase on Friday, supported by a retreat in the U.S. dollar following weaker-than-expected economic data. However, traders expect the currency’s gains to be limited due to heightened demand for the greenback from domestic oil companies.
Indian Rupee had shown some improvements at 10:00 AM IST against the US Dollar, as it stood at 83.01, which was 83.0425 during the last Thursday.
The U.S. dollar index, which experienced a 0.4% decline on Thursday, reaching 104.42, contributed to the rupee’s upward movement. This drop came after data revealed a significant decrease in U.S. retail sales in January, with revised figures for November and December also showing lower numbers.
Despite these fluctuations, the rupee has remained “well-supported” by recent dollar inflows, providing a buffer against potential weakness and maintaining levels around 83.10-83.12, as a foreign exchange trader from a state-run bank reported.
However, the gains in the Indian rupee will likely be capped by continued dollar buying from local oil companies. This trend has been observed over the last few sessions and is anticipated to persist on Friday, hampering the rupee’s ascent, as mentioned by the trader.
Additionally, India’s trade dynamics showed improvement, with the merchandise trade deficit reaching a nine-month low at $17.5 billion in January. Simultaneously, the services surplus increased to $16.8 billion, according to data released during market hours on Thursday.
While the U.S. dollar index is set for its fifth consecutive weekly gain, boosted by reduced expectations of aggressive rate cuts by the U.S. Federal Reserve, markets have adjusted their outlook. Initially predicting U.S. rate cuts to commence by March 2024, the probability of a rate cut in March and May has decreased to about 10% and 34%, respectively.
The evolving market dynamics and global economic factors will likely influence the trajectory of the Indian rupee against the U.S. dollar in the coming sessions. Traders and investors are closely monitoring these developments to navigate currency movements effectively.
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