USD/INR: Rupee Remains Weak Above 86.50 Despite Positive U.S. Economic Data

On January 16, 2025, the Indian rupee traded at 86.395 to the U.S. dollar, reaching an intra-day high of 86.462. The local currency had its best performance in over 7 months on Wednesday, bolstered by a narrower-than-expected merchandise trade deficit for December. However, the rupee continued to face pressure as it remained above the 86.50 mark, setting new record lows.

The 1-month non-deliverable forward indicated that the rupee would open at 86.40 to the U.S. dollar, slightly higher than 86.3625 in the previous session. Despite the recent rally, market observers caution that the rupee’s performance is constrained by broader challenges in the global economy.

U.S. Economic Data Boosts Global Sentiment

The rupee’s slight recovery was fueled by global developments, including a dip in U.S. Treasury yields and a positive market reaction to U.S. economic data. U.S. equities rallied, and the dollar weakened overnight after a widely tracked gauge revealed that inflation is slowing. The U.S. core consumer price index (CPI) rose by just 0.2% month-on-month in December, lower than the 0.3% increase economists had expected.

As a result, market sentiment improved, with some analysts adjusting their expectations for U.S. Federal Reserve actions. The inflation report has increased market speculation that the Fed may implement a rate cut in its March meeting, although futures indicate no change in policy rates at the Fed’s January 28-29 meeting.

Asian Currencies See Relief

Thursday brought a wave of relief to Asian currencies, with several seeing gains just days before U.S. President-elect Donald Trump’s inauguration. The markets had previously been worried about the potential impact of Trump’s trade policies and rising U.S. yields, which have weakened the appeal of Asian currencies. Despite the temporary relief, analysts remain cautious about the rupee’s prospects.

Reports indicate that the rupee’s rise may not continue on Thursday due to concerns over oil prices and the ongoing risks posed by potential U.S. tariffs. These factors continue to overshadow the currency market, leaving the outlook for the rupee somewhat weak despite recent positive data.

Oil Prices Surge Amid US Sanctions on Russia

West Texas Intermediate (WTI) crude oil prices rose above $80 a barrel, marking the highest level since July, after a more than 3% gain on Wednesday. Meanwhile, Brent crude closed near $82.

The recent US sanctions on Russia’s energy industry have added uncertainty to the market, with the International Energy Agency (IEA) warning that these measures could “significantly disrupt” Russia’s supply and distribution chains, further contributing to the rally in oil prices.

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