Rupee posts biggest single-day gain in over a month on Fed rate cut hopes

Rupee strengthens 0.46% to 87.44/$, buoyed by weaker dollar, falling CPI, and gains in Indian equities and Asian currencies

Rupee on Wednesday witnessed its highest single-day gain in more than a month since July 3, as the dollar weakened on chances of a rate cut in September by the US Federal Reserve, said dealers.  

 

The local currency appreciated by 0.46 per cent to settle at 87.44 per dollar, against the previous close of 87.71 per dollar.

 

“The Indian rupee experienced its biggest one-day appreciation since July 3, driven by a decline in the US dollar. The dollar weakened amid expectations of a September interest rate cut from the Federal Reserve, following a decline in US inflation. Further bolstering the rupee's performance were several domestic and regional factors, including gains in Indian equities and other Asian currencies, a fall in crude oil prices, and fall in the domestic Consumer Price Index (CPI),” said Dilip Parmar, senior research analyst, HDFC Securities. 

 

 

The dollar index fell by 0.28 per cent after the release of the US CPI data. It was trading below 98 at 97.83 on Wednesday. Dollar index measures the strength of the greenback against a basket of six major currencies. The headline inflation in the US remained steady at 2.7 per cent, in line with expectations, easing concerns over tariff-driven inflation. 

 

According to the CME Fedwatch tool, 98.1 per cent of investors expect a 25 basis points rate cut by the US rate-setting panel in September.

 

“There is now chance of a rate cut in the US, which means the dollar might weaken further,” said the treasury head at a private bank. “The rupee will trade between 87.20 per dollar and 87.80 per dollar in the near term,” he added.

 

The rupee has depreciated by 2.25 per cent in the current financial year so far, whereas it has weakened by 2.09 per cent in the current calendar year so far. However, the local currency has witnessed 0.18 per cent appreciation in August so far.

 

India’s CPI inflation eased to a near eight-year low of 1.55 per cent in July, driven by sustained cooling in food prices. This is the first time in over six years that inflation has fallen below the Reserve Bank of India’s 2 to 6 per cent tolerance band. Data showed that food inflation, which accounts for nearly half of the Consumer Price Index basket, stood at -1.76 per cent in July, compared with -1.06 per cent in the previous month.