The Indian rupee experienced a welcome boost on Wednesday, propelled by a slumping dollar ahead of the anticipated U.S. Federal Reserve rate cut. Trade talks with Washington also contributed to the positive sentiment in the currency market.
During the trading session, the rupee reached a peak of 87.73 before closing at 87.8150, marking a 0.27% gain, the highest one-day increase since August 19. Last week, concerns over high U.S. tariffs had sent the rupee tumbling to a historic low of 88.4550. However, this week saw a 0.2% recovery, driven by optimistic U.S.-India trade talks and the expectation of imminent Fed easing.
While the outlook for the rupee has improved slightly, some analysts warn that importer hedging could hinder significant gains near the 87.50 mark in the short term. Positive and forward-looking discussions between Indian and U.S. officials on Tuesday have also provided a boost to market confidence.
As investors eagerly await an official announcement, the market has already priced in a 25 basis point rate cut by the Fed later in the day. All eyes are on Fed Chair Jerome Powell's remarks and policymakers' updated economic projections for further guidance.
Abhishek Goenka, founder & CEO of FX advisory firm IFA Global, pointed out the potential impact of a hawkish tilt from the Fed or any negative developments in trade policies, which could introduce volatility and restrict the rupee's gains.
Market participants are also keeping a close watch on the possibility of a larger 50-basis-point cut by the Fed, especially as President Donald Trump's economic reform plans continue to cast a shadow on the central bank's independence.
In conclusion, while the Indian rupee is currently on a positive trajectory supported by weakening dollar and ongoing trade talks, concerns remain regarding future Fed decisions and political developments that could sway market dynamics and currency values.
