Rupee to see muted reaction to rising US inflation, Trump tariff worries
The Indian rupee is likely to open flat-to-marginally weaker on Thursday after hotter-than-expected U.S. inflation data made it likely that the Federal Reserve will not cut rates in a hurry and on comments by President Donald Trump that he will impose reciprocal tariffs soon.
The 1-month non-deliverable forward indicated that the rupee will open at 86.88-86.92 to the U.S. dollar compared with 86.8925 in the previous session.
The muted opening comes on the heels of a choppy few days for the Indian currency, largely due to heavy intervention by Reserve Bank of India (RBI).
The currency, so far this week, has been in wide 1.5-rupee band of 86.50 to 88. Volatility has spiked, with the 1-month realized volatility at its highest in nearly two years.
"It will be relatively calm today compared to what we have seen recently. The RBI has made in known that it is not happy with the quick pace of (rupee's) decline, which means that the market will be wary of piling on to (dollar) longs," a currency trader at a bank said.
The "next excitement" will be when "we come to know the extent of Trump's tariffs", he said.
Trump said he would impose reciprocal tariffs as soon as Wednesday on all countries that charge duties on U.S. imports, heightening the potential for a wider trade war.
The U.S. President will announce his reciprocal tariff plan before India Prime Minister Narendra Modi's visit on Thursday, a White House spokeswoman said on Wednesday.
Meanwhile, the headline U.S consumer price index (CPI) rose 0.5% against expectations of a 0.3% increase and posted the biggest monthly advance since August 2023.
The inflation report presents "a clear red alert to the Fed", ING Bank said in a note.
"Rate cut ambitions have been hit in consequence."
Interest rate future are now pricing in just one rate cut from the Fed this year.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 87.10; onshore one-month forward premium at 22.5 paise
** Dollar index down at 107.79
** Brent crude futures down 0.9% at $74.5 per barrel
** Ten-year U.S. note yield at 4.6%; rose 10 basis points on Wednesday
** As per NSDL data, foreign investors sold a net $470.6mln worth of Indian shares on Feb. 11
** NSDL data shows foreign investors sold a net $57.1mln worth of Indian bonds on Feb. 11
