Rupee rides US inflation relief; forward premiums perk up on Fed cut bets
The local currency quoted at 87.6750 at 11.00 am IST, compared to 87.7125 on Tuesday. The U.S. consumer price index for July showed limited impact from recent tariffs.
That provided a boost to emerging market currencies, with Fed rate cut odds for September climbing to 94%, and markets now pricing in 60 basis points of cuts this year.
Based on the details in the CPI report, Goldman Sachs estimates that the U.S. core PCE price index - the Fed's preferred measure of inflation - rose 0.26% in July versus their expectation of 0.31% prior to the report, corresponding to a year-over-year rate of 2.88%.
The inflation data has lent the rupee a bit of a reprieve ahead of the crucial Trump-Putin meeting on Friday, a currency trader at a bank said. The relief is unlikely to extend much beyond the current level — at most to 87.50 — with companies hedging more and interbank positioning expected to remain light until the outcome of the meeting is known.
The stakes of the meeting, which aims to explore a resolution to the war in Ukraine, are high for the rupee. Market participants expect any resolution to the conflict to have a bearing on additional tariffs that President Trump has imposed on Indian goods in response to New Delhi's continued purchases of Russian oil.
Dollar/rupee forward premiums moved higher, with the one-year dollar/rupee implied yield rising 2 bps to 2.09%, supported by the drop in U.S. yields amid Fed rate cut bets.
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