Now The Rupee Falls as A Result of Year-end Dollar Demand from Importers Here

In Kolkata, India, an attendant at a gas station organizes Indian rupee notes.

The Indian rupee fell on Tuesday as its failure to hold above a key level prompted renewed dollar buying interest, while forward premiums fell as more Federal Reserve officials tempered expectations for interest rate cuts. At 10:44 a.m. IST, the rupee was trading at 83.1875 to the US dollar, down from its previous close of 83.06.

The currency managed to break through 83 on Monday but failed to hold the level.

According to an FX trader at a bank, “the breakdown” below 83 on USD/INR “was a false one,” and we are back to the “range of 83 to 83.40 that has held for what seems like forever.” “We are seeing good dollar bids, and it could be that RBI (Reserve Bank of India) is in action again.”

The rupee and most Asian currencies fell after more Fed officials said the market is probably overly optimistic about rate cuts.

According to the Financial Times, Chicago Fed President Austan Goolsbee said the Fed is not planning to cut interest rates anytime soon, and Fed Cleveland President Loretta Mester said financial markets had gotten “a little bit ahead.”

The remarks followed a drop in US Treasury yields and a rally in US equities in the aftermath of the Federal Reserve’s dovish pivot last week.Following the Fed’s rebuke, near-maturity US yields have risen slightly. In line with this, dollar/rupee forward premiums have fallen, with the 1-year forward implied yield falling to 1.71%.Meanwhile, the Bank of Japan maintained its key policy rate of -0.10% and its forward guidance on Tuesday.

“We expect policymakers to end negative rates in January and phase out YCC (yield curve control) later in 2024,” Capital Economics predicted in a note.

The Japanese yen fell to 43.50 per dollar.