The Indian rupee started the week slightly lower on Monday, as anticipation of the incoming Trump administration's policies continued to support the dollar, despite growing expectations of a Federal Reserve rate cut this month. The rupee was trading at 84.7250 against the US dollar, a slight decline from its previous close at 84.6875. Meanwhile, dollar-rupee forward premiums edged higher, driven by increased chances of a US rate cut in December.
The dollar index rose nearly 0.2% to 106.1 on the day, following a 0.5% increase on Friday. Most Asian currencies weakened against the dollar. Traders noted that dollar offers from foreign and state-run banks helped mitigate the rupee's losses in early trading, despite strong dollar demand from importers, including local oil companies.
On the other hand, expectations that the Reserve Bank of India (RBI) will intervene to support the local currency are likely to prevent significant losses, according to a trader at a state-run bank. The rupee's decline "could slow down as the year progresses," but the trend remains towards gradual depreciation below 85, another trader at a state-run bank commented. Additionally, dollar-rupee forward premiums increased, with the one-year implied yield rising 3 basis points to 2.10% following Friday's U.S. payrolls data, which strengthened hopes for a 25 basis point rate cut by the Federal Reserve next week.
Some Fed policymakers indicated on Friday that they anticipate policy rates to continue to decrease, while also expressing caution about the pace of these cuts.
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