MUMBAI, Sept 16 (Askume) – The Indian rupee closed steady on Monday while forward premium rose against the dollar on rising prospects of a sharp 50 basis point interest rate cut by the Federal Reserve this week.
The rupee closed at 83.8875 against the US dollar, which was also Friday’s closing price.
Traders said the currency was unable to benefit from a weaker dollar due to demand from importers, including local oil companies.
The dollar index fell 0.3% to 100.7, while Asian currencies gained. The rupee has been roughly stable since September, while most Asian currencies have risen between 0.3% and 2.8%.
The rupee is likely to trade in the range of 83.85-83.98 ahead of the Fed’s policy decision on Wednesday, a forex trader at a private bank said.
Strong local dollar demand and possibility of the Reserve Bank of India absorbing dollar inflows capped the rupee’s gains, traders said.
The focus this week is squarely on whether the Federal Reserve will cut interest rates by 25 or 50 basis points. According to the CME’s FedWatch tool, rate futures currently give a roughly 60% probability of the latter, up from 30% last week.
This change benefited the forward premium of the US dollar against the rupee, with the 1-year implied yield rising 3 basis points to 2.30%, its highest level since April 2023.
“We had favoured a 50 basis point cut, but the latest employment and inflation data suggest officials will vote for a 25 basis point cut,” ING Bank said in a note.
“Nevertheless, they leave the door open for more aggressive action in the future,” the report said.
The Bank of England and the Bank of Japan are also due to make policy decisions later this week.
