Rupee rebounds after falling to lifetime low, US inflation data in focus

The Indian rupee rebounded on Wednesday, after falling to a lifetime low in the prior session, to log its best day in over seven months, aided by a softer greenback and strong dollar sales by foreign banks.

The rupee closed at 86.3625 against the US dollar, up 0.3 per cent on Wednesday, its best single-day percentage rise since June 3, 2024. 

 

The currency had declined to an all-time low of 86.6475 in the previous session. It recovered on Wednesday, helped by the dollar index's retreat from a more than two-year peak and dollar sales by at least two large foreign banks, likely on behalf of custodial clients, traders said.

Despite the day's gains, the rupee has weakened about 3 per cent since Donald Trump's victory in the US Presidential elections in November, which sent the dollar soaring, while concerns about India's slowing growth also added pressure on the local unit.

In light of the currency's sharp decline, some analysts are pushing back expectations for interest rate cuts by the Reserve Bank of India as a weaker currency fans worries about inflation.

The central bank is also expected to use its foreign exchange reserves more judiciously as it looks to quell market volatility amid persistent headwinds, Reuters reported on Tuesday.

On the day, though, the rupee found some breathing room as the dollar index dipped to 109, while Asian currencies were mostly rangebound ahead of a closely watched US consumer inflation report.

Economists polled by Reuters expect the month-on-month core consumer price index (CPI) to tick up to 0.3 per cent in December, up from 0.2 per cent in November.

"A hot CPI today could easily get investors jittery on the inflation topic before tariffs are even considered," ING Bank said in a note, referring to trade tariffs being introduced by incoming President Trump.