The Indian Rupee (INR) regained some ground on Monday after reaching a record low in the previous session. Routine interventions by the Reserve Bank of India (RBI), which likely included selling US Dollars (USD), may have helped to mitigate the INR’s losses.
The recent stronger-than-expected U.S. employment data has reinforced expectations that the Federal Reserve may not pursue aggressive interest rate cuts this year. This shift in expectations could bolster the U.S. Dollar and put additional selling pressure on the Rupee. Coupled with significant outflows from Indian equities, hawkish comments from Federal Reserve officials, and rising crude oil prices—India being the world’s third-largest oil consumer—the INR faces further downward pressure.
Market participants will be closely watching India’s Consumer Price Index (CPI) release later on Monday, with analysts forecasting a year-over-year increase of 5.3% in December. On the U.S. economic calendar, the Monthly Budget Statement will also be released. The Indian Rupee may face further depreciation, potentially falling below the 90 per Dollar threshold this year, as India’s central bank is expected to abandon the currency’s quasi-peg to the USD, according to Gavekal Research.
The stronger-than-expected U.S. Nonfarm Payrolls (NFP) report for December, which showed a rise of 256,000 jobs, significantly outpaced expectations of 160,000. The Unemployment Rate in the U.S. declined to 4.1% from 4.2% in November, while Average Hourly Earnings growth slowed to 3.9%, down from 4.0% the previous month.
The Federal Reserve’s stance on interest rates remains a key focus, with Chicago Fed President Austan Goolsbee suggesting that, in the absence of rising inflation, interest rates should decrease. Meanwhile, St. Louis Fed President Alberto Musalem cautioned that inflation risks may keep rates elevated, emphasizing the growing concern that inflation could remain stuck between 2.5% and 3% in the near future.
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