The Indian rupee is set to weaken following subdued U.S. inflation data, causing investors to delay expectations of a Federal Reserve interest rate cut. Non-deliverable forwards suggest the rupee will open against the U.S. dollar at 83.10-83.12, compared to the previous session’s 83.0025.
The dollar index reached a three-month high, and the two-year U.S. Treasury yield hit a two-month peak, resulting in a selloff in U.S. equities.
Post the inflation data impact, an FX trader commented that USD/INR is likely to “pop higher” at the opening. Odds of a Fed rate cut in March dipped below 10%, and expectations for May dropped 1-in-3, with signs of persistent U.S. inflation leading investors to anticipate a rate cut in June.
In January, U.S. consumer prices rose by 3.1% YoY, while the core measure increased by 3.9%, exceeding economist expectations of 2.9% and 3.7%, respectively. Earlier this year, investors had priced in over six rate cuts in 2024.
Attention now shifts to U.S. retail sales and industrial production data later this week, providing insights into the performance of the world’s largest economy.
The impact is reflected in Asian currencies and equities, following the trend set by U.S. markets. The evolving scenario underscores the sensitivity of global markets to U.S. economic indicators and the consequential ripple effects on currencies and equities worldwide. Investors are closely monitoring economic data for cues on the trajectory of interest rates, shaping their strategies amidst the evolving landscape of monetary policy expectations.
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