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Rupee to weaken after Fed March rate odds fall further on Powell, US jobs report
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The Indian rupee is expected to decline at open on Monday after a robust U.S. jobs report and comments by Federal Reserve Chair Jerome Powell prompted a plunge in the odds of an interest rate cut in March.
Non-deliverable forwards indicate the rupee will open at around 83 to the U.S. dollar, compared with its close of 82.9175 in the previous session.
Investors are now pricing in only a 15% probability that the Fed will cut rates at its next meeting in March. The dollar index climbed to its highest since mid-December and the two-year U.S. yield rose to a one-month peak.
Data on Friday showed U.S. job growth in January surged well past expectations, while the data for December was revised higher. Average hourly earnings increased the most since March 2022.
The employment report "extended the November-December acceleration in payrolls into January" and earnings too showed a reacceleration, Morgan Stanley said in a note.
In short, the brokerage added, it was a labour market "that is showing little signs of easing" and reaffirms our view that the Fed will be on hold until June.
Fed Chair Powell, in an interview on CBS "60 Minutes" aired in Asia hours on Monday, repeated that it was likely too soon to have confidence to cut rates in March, further magnifying the impact of the jobs report on Treasuries.
The 10-year U.S. yield made a high of 4.0950 in Asia trading.
Asian currencies sank, with the Korean won down 1.20% and the Malaysian ringgit slipping 0.8%. The offshore Chinese yuan weakened to 7.21 to the U.S. dollar.
The "big moves" in Asia will make the rupee decline past 83 to the dollar at open, and then we "will just have to see how the inflows pan out", an fx trader at a bank said.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.08; onshore one-month forward premium at 7.50 paisa
** Dollar index up at 104.06
** Brent crude futures up 0.2% at $77.5 per barrel
** Ten-year U.S. note yield at 4.07%
** As per NSDL data, foreign investors bought a net $37.7 mln worth of Indian shares on Feb. 1
** NSDL data shows foreign investors bought a net $273.4 mln worth of Indian bonds on Feb. 1
