Rupee rises to two-week high as dollar weakens on Trump-Fed rate cut talk

Business Standard

5 hours ago

Trump's remarks on Powell spur Fed rate cut hopes; rupee hits over two-week high at 85.71, though gains capped by RBI intervention via PSU banks
New Delhi
The rupee appreciated sharply on Thursday, tracking a decline in the dollar index after US President Donald Trump suggested that Federal Reserve Chair Jerome Powell could soon be replaced, fuelling expectations of a rate cut as early as July. The remark sparked concerns over the future independence of the US Federal Reserve, dealers said.
The local currency appreciated to as much as 85.63 per dollar during the day before settling at 85.71, its highest level since 12 June this year. Market participants said the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar purchases, which capped the rupee's gains.
'The RBI was buying dollars via PSU banks at the 85.63–85.65 per dollar level after the morning appreciation,' said a dealer at a state-owned bank. 'The dollar index was down and there were some inflows too, helping the rupee. Foreign banks were on the buying side (rupee) today,' he added.
The dollar index fell 1.18 per cent to 97.15 in Asian trading—its lowest level since March 2022—as it extended a sharp decline this week. The drop was partly attributed to fading safe-haven demand after a US-mediated ceasefire between Iran and Israel appeared to be holding. Losses deepened after President Trump criticised Fed Chair Powell and called for more aggressive rate cuts. Powell, in his testimony, maintained a cautious stance on policy easing and warned that Trump's proposed tariffs pose an inflationary risk that could delay central bank action.
The dollar index measures the strength of the greenback against a basket of six major currencies.
'There is resistance around the 85.50 per dollar mark, and the RBI will also be there to shore up its reserves,' said a market participant. 'We see an appreciation bias for now; the probability of a rate cut in the US will take the dollar index lower,' he added.
The rupee has depreciated by 0.2 per cent against the dollar in the current financial year, and by 0.1 per cent in the current calendar year.
'There were two reasons—one being the broad-based weakness in the dollar and the other being FII inflows of around ₹15,000–16,000 crore because of ongoing IPOs and some sentimental flows driven by news of SBI's Qualified Institutional Placement (QIP),' said another market participant.
SBI is preparing to raise up to ₹25,000 crore through a QIP—its first equity offering in eight years—to bolster its Common Equity Tier 1 (CET1) capital. The announcement has been well received by the market, spurring increased interest from foreign investors.