MUMBAI: The Indian rupee is likely to inch higher at the open on Thursday, with traders keeping an eye on tensions between India and Pakistan, and on the US dollar, which found support following the Federal Reserve’s policy meeting.
The 1-month non-deliverable forward indicated that the rupee will open at 84.72-84.74 to the US dollar compared with 84.8250 in the previous session.
The Indian rupee on Wednesday posted its sharpest one-day percentage decline in nearly a month after India launched missile strikes on Pakistan and Pakistan-administered Kashmir.
In response, Pakistan pledged retaliation, with defence minister Khawaja Muhammad Asif telling broadcaster Geo News that Islamabad would target Indian military installations, not civilians. While Pakistan has vowed to retaliate, the lack of an immediate response will offer slight relief to the rupee, a currency trader bank said.
“If Pakistan does follows through and hits India, the rupee will come under renewed pressure,” he said. Foreign investors were net buyers of Indian equities on Wednesday, per preliminary data, signalling that they do not foresee a significant flare-up in the India-Pakistan standoff.
Indian rupee falls most in a month after Indian strikes in Pakistan raise tensions
“The flows reflect a view that the situation, while tense, is unlikely to spiral into a broader conflict,” the trader said.
Asia fx falls
Most Asian currencies dipped against the US dollar on Tuesday after the Fed made no changes to the policy rate, in line with expectations. The dollar index inched up on Wednesday.
The central bank noted rising risks of both higher inflation and unemployment, adding to uncertainty over the US economic outlook.
U.S policymakers continue to assess the fallout from President Donald Trump’s tariff measures.
“There will be policy trade-offs if both unemployment and inflation rise, putting the Fed in a difficult predicament,” MUFG Bank said in a note.
The offshore Chinese yuan dropped past 7.2350 to the US dollar.
