Rupee rises after Powell reiterates expectations of Fed rate cut in September
MUMBAI, Aug 26 (Reuters) – The Indian rupee is likely to rise on Monday after comments by U.S. Federal Reserve Chairman Jerome Powell all but confirmed a September interest rate cut, leading to a further decline in the dollar.
The 1-month non-deliverable forward suggested that the rupee will open at 83.80-83.82 against the US dollar, compared to 83.89 in the previous session.
US stocks rallied on Friday, while US Treasury yields fell. Asian currencies recovered, led by the Indonesian rupiah.
The Fed’s rate cut in September had already been fully priced in before Powell’s speech, so it was “surprising to see a reaction to what was already expected,” said a bank foreign exchange trader.
“That means they doubted that Powell would reverse course, and now that he has confirmed it, they have jumped in,” he said. For the dollar/rupee rate, the “point to watch” on the downside is 83.75.
25 BPS or 50 BPS
The current debate is whether the Fed will cut interest rates by 25 or 50 basis points at its September meeting and whether it will implement the 100 basis point rate cuts in 2024 that investors are currently pricing in.
The US labor market report on September 6 will determine the extent of the Fed’s interest rate cut next month, ING Bank said in a statement.
The Fed does not want further weakness in the US labor market, and therefore a further increase in US unemployment to 4.4% or 4.5% could trigger a move of 50 basis points, it said.
Currently, the probability of a rate cut of 25 basis points is 60% and 40% for 50 basis points.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.88; one-month onshore forward premium at 7 paisa
** Dollar index falls to 100.62
** Brent crude oil futures rise 0.7% to $79.5 per barrel
**Yield on 10-year US government bonds at 3.79%
** According to NSDL data, foreign investors bought Indian equities worth a net $220.6 million on August 22.
** NSDL data shows that foreign investors sold Indian bonds worth a net $222.3 million on August 22
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Reporting by Nimesh Vora; Editing by Rashmi Aich
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