Fed rate cut prospects may boost rupee despite Trump-related concerns

The Indian rupee, on Friday, will likely get support from remarks by a Federal Reserve official that the central bank may deliver more rate cuts this year than forecasted in December, which spurred a further dip in US Treasury yields.

The 1-month non-deliverable forward indicated that the rupee will open unchanged-to-marginally higher from its close of 86.55 per US dollar in the previous session.

Asian currencies were mostly higher, with the Chinese yuan ticking higher as the country's economic growth beat forecasts.

There are "a few positives" for the rupee to begin the day with, a currency trader at a bank said.

 

However, "the big risk (US President-elect Donald Trump) is now here" and "it's difficult to see" rupee recovering by much, he said. Trump's inauguration is on Jan. 20.

The rupee is down 0.7 per cent since last Friday, heading for its eleventh straight weekly decline. Since Trump's election victory in early November, the rupee has slid nearly 3 per cent amid near non-stop stress.

India's weak growth in the September quarter, expectations that the Reserve Bank of India may cut borrowing costs soon, and a central bank that seems more willing to allow the currency to depreciate have extenuated the rupee's plight.

The rally in oil prices to kick off 2025 has given investors one more reason to avoid the rupee.

Among the multiple headwinds, there was good news recently, with US core inflation, retail sales and initial jobless claims data renewing hopes that the Fed may cut rates more than the two times that they projected in December.

Fed Governor Christopher Waller said three or four rate cuts this year are still possible if economic data weakens further.