MUMBAI, Sept 16 (Askume) – The Indian rupee is expected to strengthen on Monday as the Federal Reserve raised the prospect of a 50 basis point rate cut this week.
One-month non-deliverable forwards indicate the rupee will remain unchanged or slightly higher against the dollar from the previous session’s 83.8875. The rupee has been closed in a range of about 2 paise for over a month.
“It could be a volatile week (for world markets) because of the uncertainty about what action the Fed will take,” said a bank currency trader.
“However, does this mean that USD/Rupee will form a new range? I doubt it.”
He added that the risks for the USD/Rupee pair could be mitigated depending on the Fed expectations ahead of the decision.
The Federal Reserve is widely expected to begin a rate-cutting cycle on Wednesday due to falling inflation and a slowing labor market. It is still uncertain whether the Fed will cut interest rates by 25 basis points or 50 basis points.
There is a lot of uncertainty about what might happen. After the release of the US non-farm payrolls and inflation report, investors expected an interest rate cut of about 50 basis points.
However, some media reported that Fed officials were considering a 50 basis point rate cut, forcing investors to reconsider. In fact, the possibility of 50 bps is now more likely than the possibility of 25 bps.
“There are strong arguments both for and against the Fed becoming more active,” HSBC said in a note.
HSBC said it “should be clear” what the Fed’s decision “means for the broader dollar.” It said the dollar should rise as the Federal Reserve remains cautious about cutting interest rates.
key indicators:
** One month non-payable is Rs. 83.96; 1 month prepaid domestic premium is 9 paise
** US dollar index falls to 100.97
** Brent crude futures rose 0.2% to $71.7 a barrel.
** Ten-year US Treasury yield is 3.66%
** Foreign investors bought Indian stocks worth $949.2 million on September 12, according to NSDL data.
** Foreign investors sold Indian bonds worth $71.4 million on September 12, NSDL data showed.
