INDIA RUPEE-Rupee strengthens aided by drop in US yields, forward premiums rise

Credit: REUTERS/THOMAS WHITE

By Jaspreet Kalra

MUMBAI, Dec 14 (Reuters) - The Indian rupee climbed on Thursday, aided by a slump in U.S. Treasury yields following a dovish policy decision from the Federal Reserve, with Chair Jerome Powell saying that the question of when to cut rates is "coming into view."

The rupee INR=IN was at 83.32 as of 10:55 a.m. IST, up by 0.1% compared to its close at 83.40 in the previous session.

The 10-year U.S. treasury yield fell to a low of 3.97% in Asia hours, its lowest level since August, and the dollar index was down 0.2% at 102.65.

Asian currencies rallied, with the Korean won and Thai baht leading gains, each up about 1.7%.

"This rally should hold ... but don't expect the pair (USD/INR) to go below 83.10," a foreign exchange trader at a private bank said.

The Fed kept rates unchanged on Wednesday but Chair Jerome Powell struck a dovish tone and said that rate increases were "not the base case anymore."

"Declaring victory would be premature ... But, of course, the question is 'when will it become appropriate to begin dialling back?" Powell told reporters in a press conference.

Following Powell's remarks, investors raised their bets on the Fed cutting policy rates through 2024.

Market participants now expect a 71% chance of the Fed starting to ease rates in March, up from 39.7% on Tuesday, according to the CME Group's FedWatch tool.

Meanwhile, rupee forward premiums rose, tracking the fall in U.S. yields. The 1-year implied yield INRANPRM1Y=RR rose 7 bps to 1.74%.

While a dovish Fed is a marginal relief for the rupee, it's unlikely to see "much appreciation," Gaurang Somaiya, an FX and rates researcher at Motilal Oswal Financial Services, said.

The Bank of England and the European Central Bank will deliver their policy decisions later on Thursday.

(Reporting by Jaspreet Kalra; Editing by Sonia Cheema)

((jaspreet.kalra@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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