Rupee to rise following `modestly dovish` Fed policy
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The Indian rupee is expected to open higher on Thursday, after the U.S. Federal Reserve maintained their forecast for three interest rate cuts this year, spurring a drop in the dollar and Treasury yields.
Non-deliverable forwards indicate the rupee will open at around 83.06-83.08 to the U.S. dollar compared with 83.1575 in the previous session.
The local currency is on a four-day losing run that had taken it to the weakest in two months.
The rupee "will catch a bit of relief" at open "based on the reaction to the Fed" and then it will be about whether the dollar demand witnessed in recent days persists, a currency trader at a bank said.
"On balance, I would say these are good levels to sell (USD/INR)."
The Fed's median dot plot indicated that policymakers expect three rate cuts this year, unchanged from what was forecasted in December. Following the last two higher U.S. inflation readings, there was a risk that the dot plot would adjust higher and indicate two rate cuts, analysts had said prior to the Fed decision.
That the Fed kept the 2024 rate cut rejections at three was "modestly dovish", ING Bank said in a note.
The median Fed dot plot for 2024 was unchanged despite a 0.2% increase in the median 2024 core PCE inflation.
"Our interpretation is that Fed Chair Jerome Powell and a narrow majority of the FOMC (Federal Open Market Committee) feel strongly about not delaying cuts for too long and are targeting the June meeting for the first cut," Goldman Sachs said in a note.
Odds that the Fed will cut rates at the June meeting rose to 3-in-4.
The dollar index dropped on Wednesday and added to the losses in Asia. The 2-year U.S. Treasury yield was 10 basis lower than before the Fed decision.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.11
** Dollar index down at 103.18 ** Brent crude futures up 0.6% at $86.5 per barrel ** Ten-year U.S. note yield at 4.26% ** As per NSDL data, foreign investors bought a net $162.9 mln worth of Indian shares on Mar. 19
** NSDL data shows foreign investors sold a net $52.4 mln worth of Indian bonds on Mar. 19
