Indian Rupee Strengthens as US Treasury Yields Fall and Dollar Loses Ground

Published: Mon 6 Nov 2023, 10:28 AM

The Indian rupee has strengthened on Monday due to the fall in US treasury yields and the decrease in the value of the dollar. This is primarily based on the belief that the U.S. Federal Reserve will not continue to raise interest rates in the current cycle.

As of 10:40 a.m. IST, the rupee was at 83.1850 (Dh22.66) against the U.S. dollar, compared to its previous close at 83.2850. While most Asian currencies have seen significant gains, the rupee has been comparatively weaker due to ongoing demand for the U.S. dollar from importers.

US treasury yields have fallen after Friday’s data indicated a cooling of the US labor market. The 10-year U.S. treasury yield currently stands at 4.57% in Asia, well below last month’s peak of over 5%.

The odds of a Fed rate hike at the December meeting have dropped to just 7%, down from 20% a week earlier, according to industry experts. Dilip Parmar, a foreign exchange research analyst at HDFC Securities, believes these developments are slightly positive for the rupee. However, the continuous outflow of foreign funds is likely to limit the rupee’s growth and maintain its current range.

The rupee has been trading between 83.0225 and 83.2950 for over a month. Since September, overseas investors have been net sellers of Indian equities, selling shares worth $5.1 billion.

A foreign exchange trader at a foreign bank predicts that if the USD/INR pair does not break the range on the higher side in the next two weeks, it will fall to 82.80.

While economic data for the current week is relatively light, investors are eagerly waiting for comments from Fed officials who are scheduled to speak at various forums.

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