The Indian Rupee’s Weekly Performance Amid Global Monetary Policy Dynamics

The Indian rupee experienced a slight decline against the US dollar on Friday, primarily due to increased demand for the dollar from importers and oil companies. However, despite this daily setback, the rupee managed to secure weekly gains driven by foreign fund inflows into the Indian share and bond markets.

Closing at 82.9375 per US dollar on Friday, compared to its previous session’s close of 82.84, the rupee showcased resilience throughout the week, marking a modest 0.1% increase. Notably, it reached a three-week high of 82.8350 on Thursday, indicating a positive trajectory. However, traders observed that the rupee struggled to surpass the crucial resistance level of 82.80 during the week, despite the influx of foreign capital, possibly due to intervention from the Reserve Bank of India (RBI).

Jigar Trivedi, Senior Research Analyst specializing in currencies and commodities at Reliance Securities, highlighted the RBI’s potential intervention to prevent the rupee from appreciating sharply beyond the 82.70-82.80 range. Traders are cautious about the RBI’s stance, anticipating its efforts to stabilize the currency by purchasing dollars as necessary.

Adding to the rupee’s challenges, the Federal Reserve’s cautious approach towards early interest rate cuts also exerted pressure on the currency. Fed Governor Christopher Waller’s remarks on Thursday suggested a reluctance to implement rate cuts prematurely, preferring to monitor inflation trends closely. This sentiment was echoed in the minutes of the Fed’s recent policy meeting, emphasizing the need for a clear reduction in inflationary risks before considering rate adjustments.

As a result, expectations of a rate cut by the Fed in March have been completely ruled out, with odds of a reduction in May now standing at less than 25%. Investors are eagerly awaiting the release of January’s headline and core Personal Consumption Expenditure (PCE) index from the US next week. These data points will be closely scrutinized for insights into the timing of potential interest rate adjustments.

Given the recent uptick in US consumer inflation, the upcoming data releases will be of particular importance, as they could influence market expectations regarding the Fed’s monetary policy trajectory. Any indications of persistent inflationary pressures could further delay the prospect of rate cuts, which might continue to keep the Indian rupee under pressure in the near term.

Overall, while the Indian rupee demonstrated resilience and posted marginal gains for the week, ongoing factors such as dollar demand, RBI intervention, and global monetary policy dynamics are likely to influence its performance in the coming weeks. Traders and investors will closely monitor developments in both domestic and international markets for cues on the rupee’s future trajectory.