The Indian rupee strengthened to its highest level in over six weeks on Thursday, following the Federal Reserve's decision to initiate policy easing with a 50-basis-point rate cut. However, market participants anticipate that importer demand for dollars will constrain the currency's near-term gains. By 10:20 a.m. IST, the rupee was trading at 83.66 against the U.S. dollar, reflecting a 0.1% increase from its previous close of 83.75. The local currency reached a peak of 83.6650 in early trading, marking its strongest level since August 1.
The dollar index initially dropped to its lowest point year-to-date after the Fed's rate cut announcement on Wednesday but later recovered to 101, bolstered by Chair Jerome Powell's remarks that the U.S. economy does not face a recession risk. The rupee's ascent was supported by widespread selling of the dollar on Thursday, though a foreign exchange salesperson at a private bank noted that the currency is unlikely to surpass 83.65. "Importers are likely to be active buyers of dollars at these levels," the salesperson added.
Asian currencies exhibited mixed performance, with the offshore Chinese yuan appreciating by nearly 0.2%, while the Malaysian ringgit and Korean won declined. The U.S. central bank revised its projections to indicate that its benchmark interest rate would decrease by another half a percentage point by the end of this year, a full percentage point next year, and half a percentage point in 2026. Following the Fed's rate cut, attention now shifts to the Reserve Bank of India (RBI) and whether the rupee can sustain its upward momentum, according to Amit Pabari, managing director at FX advisory firm CR Forex.
Traders anticipate that the RBI will intervene to moderate sharp gains in the rupee by absorbing dollar inflows, aiming to bolster its foreign exchange reserves and safeguard the competitiveness of Indian exports.
