MUMBAI, Sept 20 (Askume) – The Indian rupee strengthened against the U.S. dollar on Friday, putting it on track for its biggest weekly gain this year, after the Federal Reserve announced a sharp 50 basis points cut in interest rates earlier this week.
The rupee rose 0.1% to 83.5450 against the dollar from Thursday’s close of 83.68.
A public sector bank trader said dollar quotes from foreign banks and the possibility of unwinding of long dollar-rupee positions in the non-deliverable forward (NDF) market supported the rupee on Friday.
The rupee has risen steadily over the last five trading days, rising 0.4% week-on-week, and is expected to register its best weekly gain since December 2023.
The local currency was also helped by improved portfolio flows due to interest rate cuts by the Federal Reserve. In September, foreign investors bought more than $7 billion in local stocks and bonds, setting a record for monthly flows into 2024.
The dollar index traded near its lowest this year at 100.5, while most Asian currencies were higher.
Anil Kumar Bhasali, head of finance at Finrex Treasury Advisors, said the Reserve Bank of India is also “loosening its grip on the USD/INR pair,” which has contributed to the recent price action.
At the same time, the forward premium of the US dollar against the rupee continued to rise, with the 1-year implied yield rising 3 basis points to 2.35%, the highest since April 2023.
Buoyed by expectations that the Federal Reserve will lower borrowing costs, the one-year implied yield has risen 11 basis points since September.
The probability that the Fed will cut interest rates by 50 basis points in November rose to 43% from 37% a day earlier, according to CME Group’s FedWatch tool.
