MUMBAI, Aug 26 (Reuters) – The Indian rupee rose on Monday and forward premiums jumped after more dovish-than-expected comments from U.S. Federal Reserve Chairman Jerome Powell suggested the possibility of a deeper interest rate cut at next month’s meeting.

The rupee was trading at 83.8475 against the US dollar at 10:40 am IST, up from 83.89 on Friday. The implied yield on the 1-year dollar/rupee forward premium rose to 2.14%, the highest since May 2023.

Powell said that “the time has come to adjust policy,” suggesting that Fed policymakers will most likely decide to cut borrowing costs at their next meeting in September. Powell’s remarks signaled that he has more confidence that inflation is heading back toward the Fed’s target, while emphasizing the weakness in the U.S. labor market.

“Chairman Powell’s message may have been clearer than markets expected,” MUFG Bank said in a statement.

The Fed is now placing more emphasis on downside risks to the labor market than on upside risks to inflation, it said.

With the labor market now apparently the priority, the US jobs report for August, due next Friday, will be the key data point for whether the Fed will cut interest rates by 25 or 50 basis points at its meeting on September 17-18.

Futures currently price in a probability of almost 40% for a rate cut of half a percentage point.

Chairman Powell expressed no objection to market pricing and nothing he said suggested that a 50 basis point rate cut was off the table, MUFG said.

Rupee uptrend largely limited

The rupee opened at 83.81 against the dollar, but subsequently ran into difficulties due to dollar demand from importers.

This is the same price trend that has been observed in recent days, said a foreign exchange trader.

The dollar/rupee pair is “facing a flood of bids on all kinds of dips,” he said.

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