Rupee gains as dollar weakens on expectation of rate cut by US Fed

The rupee appreciated for the third consecutive day on Tuesday, settling 16 paisa stronger at 88.06 against the dollar. The gain tracked a fall in the dollar index amid expectations of a 25-basis-point rate cut by the US Federal Reserve, dealers said.

 

“The boost came from a weakening US dollar as markets fully priced in a 25-basis-point Fed rate cut, expected in tomorrow’s (Wednesday’s) Fed meeting. Importer demand continues to exert pressure, limiting how far the rupee can strengthen. Concerns around US tariffs impacting trade and foreign investment flows are still present,” said Abhishek Goenka, founder and chief executive officer of IFA Global.

 

The dollar index declined 0.3 per cent on Tuesday, supporting a rally in most Asian currencies, including the rupee.

 

“The local currency was also bolstered by a rebound in domestic equities, driven by optimism for a positive outcome in the US–India trade negotiations,” said Dilip Parmar, senior research analyst, HDFC Securities.

 

The US rate-setting panel will announce its policy decision after Indian market hours on Wednesday, with markets already pricing in a 25-basis-point cut. Analysts said the dollar’s weakness reflected investor positioning ahead of the decision.

 

The rupee had hit a record low of 88.44 against the dollar last week, pressured by strong dollar demand from importers amid concerns over potential US tariffs.

 

So far this financial year, the rupee has depreciated 2.94 per cent against the dollar, while in the calendar year to date, it has weakened 2.78 per cent.

 

“These developments have provided some cushion against tariff-related concerns, keeping the rupee on a firmer footing in the short term. Market participants remain focused on the upcoming Fed policy decision on Wednesday evening, which will be a key trigger for further moves. For now, the rupee maintains a positive outlook, with a trading range expected between 87.55 and 88.25,” said Jateen Trivedi, vice-president and research analyst – commodity and currency, LKP Securities.