Indian Rupee Weakens to Record Low: Central Bank Intervention Fails to Stem Decline

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Indian Rupee Hits Record Closing Low Despite Central Bank Intervention

Team FS

11/Jun/2024

Key Points:

1: The Indian rupee ends at a record closing low, pressured by weakness in other Asian peers, despite intermittent dollar selling intervention by the central bank.

2: Regular market intervention from the Reserve Bank of India has curbed the decline, but the rupee remains near its record low hit in April.

3: Traders await the Federal Reserve’s policy decision and crucial U.S. consumer inflation data, with attention on interest rate decisions and remarks from Fed Chair Jerome Powell.

The Indian rupee witnessed a slight weakening on Tuesday, ending at a record closing low despite intermittent dollar selling intervention by the central bank. Pressure from weakness in other Asian currencies added to the rupee's woes, highlighting the challenges faced by emerging market currencies in the current economic landscape.

Regular Central Bank Intervention: Curbing Sharp Declines
While the Reserve Bank of India's (RBI) dollar sales helped cap further sharp losses, the rupee settled at 83.5650 against the U.S. dollar, 0.1% below its previous close. Despite hovering near its record low of 83.5750 hit in April, regular market intervention from the RBI has prevented sharper declines in the Indian currency.

Market Dynamics and External Factors: Impact on the Rupee
Choppy trading last week, influenced by national election results, spurred increased hedging from importers and exporters, as indicated by data from a local clearing house. Additionally, most Asian currencies slipped on Tuesday, with the Korean won leading losses, while the dollar index remained slightly higher at 105.2.

Awaiting Federal Reserve's Policy Decision and U.S. Inflation Data
Traders are eagerly awaiting the Federal Reserve's policy decision scheduled for Wednesday, where the central bank is expected to keep rates unchanged. Attention will be on Fed Chair Jerome Powell's remarks and potential changes to the interest rate dot plot. Furthermore, crucial U.S. consumer inflation data is also due on Wednesday, with economists forecasting steady month-on-month core CPI in May.

Forex Market Sentiment and Outlook
Amidst these developments, forex traders are cautious, with many adopting a wait-and-watch approach. Fresh positioning on USD/INR is limited, as market participants await clarity from the Federal Reserve's decision and U.S. inflation data. While state-run banks' offers were present, they were not sufficient to reverse the rupee's downward trajectory, underscoring the complex dynamics at play in the currency markets.

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Indian Rupee Hits Record Closing Low Despite Central Bank Intervention

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