July 11, 2024
New Delhi, India
USD/INR Analysis
The USD/INR exchange rate has been under pressure as the Indian Rupee (INR) strengthens against a softer US Dollar (USD). Factors such as foreign inflows into Indian markets and a decline in crude oil prices have supported the INR. This article examines the elements influencing the USD/INR pair, including Federal Reserve rate cut speculation and the upcoming US Consumer Price Index (CPI) report.
INR Strengthens on Foreign Inflows and Crude Oil Prices
The Indian Rupee edged higher in Thursday’s early European session, buoyed by persistent foreign inflows into Indian markets and a fall in crude oil prices. As India is the third-largest consumer of crude oil globally, lower oil prices reduce import costs, thereby supporting the local currency. This appreciation of the INR is further strengthened by a weaker USD, which has been impacted by increasing expectations of Federal Reserve rate cuts.
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Fed Rate Cut Bets Weigh on USD
Speculation about potential Federal Reserve rate cuts has kept the USD on the defensive. Despite Fed Chair Jerome Powell’s acknowledgment of progress in cooling inflation and a more balanced labor market, he has not committed to rate cuts, stating that future interest rate decisions will be data-dependent. Powell emphasized that rate cuts would not be appropriate until there is greater confidence that inflation is moving sustainably towards the Fed’s 2% target.
Renewed USD Demand from Importers
Despite the broader trends, the renewed demand for the USD from Indian importers, driven by high oil price pressures, could undermine the local currency. As a major crude oil importer, India’s currency is sensitive to fluctuations in oil prices, and increased demand for USD to pay for oil imports can weaken the INR.
Focus on US CPI Data
The market is keenly awaiting the release of the US CPI inflation data for June, which is expected to show a year-over-year increase of 3.1%, with core inflation projected to remain steady at 3.4%. This data will be critical in shaping expectations for the Fed’s policy path. Further progress on inflation could lead to changes in the Fed’s policy statement, potentially paving the way for a rate cut in September.
Conclusion
The USD/INR exchange rate is influenced by a mix of domestic and international factors, including foreign inflows, crude oil prices, and Fed rate cut expectations. As markets await the US CPI data, investors will closely monitor these developments to gauge the future direction of the pair.
At the time of writing this article USD/INR was trading at 83.5230INR up +0.0330 (+0.04%).
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