Rupee gains to over 2-week high ahead of US Federal Reserve meet outcome

Rupee strengthened by 25 paise to settle at 87.81 per dollar on Wednesday -- the highest in two weeks -- ahead of the US Federal Reserve meeting outcome. Optimism around India-US trade deal also helped the local currency, said dealers.

 

The US rate setting panel is scheduled to announce its policy decision after Indian markets hours. The foreign exchange market has priced in a 25-basis-point rate cut.

 

The domestic currency appreciated up to 87.72 during the day. It had settled at 88.06 per dollar on Tuesday.

 

“The move (rupee’s appreciation) was underpinned by a softer dollar ahead of the Federal Reserve’s policy decision, where markets are largely positioned for a rate cut, and by improving sentiment from constructive US–India trade discussions,” said Abhishek Goenka, founder & CEO of IFA Global.

 

“The moderation in US Treasury yields and the decline in the dollar index created a supportive backdrop for emerging market currencies, with the rupee particularly well-placed to benefit given the forward-looking nature of the recent trade dialogue,” he added.

 

Positive sentiment in the currency market followed a telephone call between Prime Minister Nerendra Modi and US President Donald Trump, aimed at easing trade tensions. 

 

In a social media post on Tuesday, President Trump described the conversation as “wonderful” and extended birthday wishes to Prime Minister Modi. Meanwhile, chief negotiators from both countries are continuing discussions in New Delhi on a proposed bilateral trade agreement.

 

The dollar index was trading at 96.73, against Tuesday’s 97. It measures the strength of the greenback against a basket of six major currencies.

 

The Indian unit has appreciated 0.45 per cent against the dollar this month while it has weakened by 2.67 per cent in the current financial year so far.

 

“This is largely a reflection of a more positive outlook on US-India trade relations and the ongoing ‘long unwinding’ in the USDINR, a trend supported by the greenback’s weakness and a favourable REER valuation,” said Dilip Parmar, senior research analyst, HDFC Securities. 

 

“The technical outlook for the USDINR will likely turn bearish once the level of 87.65 breaks. We see a key support level at 87.65, a decisive break of this upward-sloping trendline would signal a further strengthening of the rupee versus dollar, with the strong resistance level at 88.40,” he added.

 

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. 

Markets rise on rate-cut hopes 

Shares edged higher on Wednesday, as the Nifty 50 rose 0.36 per cent to 25,330.25 and the BSE Sensex added 0.38 per cent to 82,693.71, closing at two-month high levels. This was driven by progress in trade talks with the US and expectations of a rate cut by the Federal Reserve. (REUTERS)