What’s going on here?
The Indian rupee steadied at 83.7275 against the US dollar on Tuesday, barely budging from its record low of 83.74 hit on Monday, thanks to modest dollar sales by state-run banks and anticipated Reserve Bank of India (RBI) interventions.
What does this mean?
Despite touching an all-time low, the rupee held its ground due to strategic minor dollar sales by state-run banks that brought momentary relief. Market participants believe the Reserve Bank of India’s potential interventions will keep near-term volatility in check, with the 1-month implied volatility for the dollar-rupee pair at a historic low of 1.55%. However, a private bank forex salesperson suggested that without a significant weakening of the US dollar, the rupee may continue its gradual decline toward the earlier support range of 83.55-60. Across Asia, currencies mostly declined, though the Chinese yuan saw a slight increase.
Why should I care?
For markets: Central banks take center stage.
Market movements this week hinge significantly on upcoming central bank decisions. The Bank of Japan and Federal Reserve are set to announce policy updates on Wednesday, followed by the Bank of England on Thursday. These decisions could steer market sentiments and influence currency valuations globally. Meanwhile, US job openings data, due later today, might add another layer of volatility.
The bigger picture: Fed meeting eyes rate cut.
Looking ahead, ING Bank forecasts that the Federal Reserve’s upcoming meeting is likely to be risk-bullish and dollar-negative, potentially laying the groundwork for a rate reduction. Current interest rate futures signal about 66 basis points of easing throughout 2024. Such a move could shift global market dynamics, affecting everything from emerging market currencies to investor risk appetite.
