The Indian rupee is anticipated to experience a slight decline in its opening on Wednesday, influenced by the strengthening U.S. dollar following robust U.S. labor market data, reducing the likelihood of a Federal Reserve interest rate cut in March.
Forecasts from non-deliverable forwards suggest that the rupee will commence trading at approximately 83.12-83.14 against the dollar, as opposed to the previous session’s 83.1050. Over the past four sessions, the intraday range for the rupee has been limited to 2 to 6 paisa.
The probability of a March Fed rate cut dropped to 44% after an unexpected rise in U.S. job openings in December, coupled with higher revisions in the preceding month’s data, indicating the continued strength of the labor market. Additionally, the U.S. headline Conference Board consumer confidence reached a two-year high.
A month ago, investors were highly confident that the Fed would initiate a rate-cut cycle in March. However, subsequent data pointing to the resilience of the U.S. economy and labor market has tempered these rate-cut expectations. The upcoming meeting of the Fed is expected to maintain the current policy rate, with policymakers seeking further progress on inflation. Attention will be paid to Chair Jerome Powell’s statements regarding the potential March rate cut.
In Asia, the dollar index exhibited an upward trend, contributing to a 0.1% to 0.5% decline in Asian currencies. Concurrently, Asian shares and S&P 500 Index futures experienced a downturn.
The complex interplay of economic indicators and global market dynamics underscores the uncertainty surrounding currency movements, making it crucial for market participants to monitor statements from critical policymakers and central banks closely.
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