What’s going on here?
The Indian rupee held steady at 83.4825 against the US dollar on July 10, 2024, as Federal Reserve Chair Jerome Powell acknowledged inflation progress without hinting at upcoming rate cuts.
What does this mean?
Fed Chair Powell’s recent remarks have kept financial markets on their toes. Despite acknowledging strides in tackling inflation, Powell steered clear of providing any timeline for interest rate cuts. This cautious stance caused US bond yields and the dollar index to edge higher. Consequently, the Indian rupee mirrored the cautious sentiment of its Asian counterparts, showing only minimal movement. As of 10:00 a.m. IST, the rupee stood at 83.4825 against the dollar, virtually unchanged from its previous close. The Fed’s indecision on rate cuts suggests that traders should stay alert for further economic data, particularly with upcoming US consumer inflation figures.
Why should I care?
For markets: Navigating the waters of uncertainty.
Traders expect the Indian rupee to remain within a tight range of 83.40-83.55 in the near term, sizing up the impact of Powell’s guarded comments. The odds of a September rate cut have dipped slightly to 73% from 76%, indicating a cautious market sentiment. Investors are now eyeing the upcoming US Consumer Price Index (CPI) data, with economists predicting a steady month-on-month core CPI at 0.2% for June. Positive CPI readings could push the dollar index below its 100-day moving average, potentially influencing rupee fluctuations.
The bigger picture: Global economic shifts on the horizon.
Powell’s assertion of facing ‘two-sided risks’ underlines the Fed’s delicate balancing act between controlling inflation and maintaining economic growth. This approach stresses the importance of incoming economic data, shaping global market expectations. Meanwhile, India’s inflation rate, set to be announced on Friday, is expected to rise to 4.8% year-on-year due to increasing vegetable prices. These inflationary pressures signal a potential shift in monetary policy dynamics, with both the Fed and the Reserve Bank of India closely monitoring their respective economic environments.
