Indian rupee climbs to 1-month high amid expectations of Fed rate hike pause

The Indian rupee climbed to a new monthly high against the US dollar on Tuesday as markets wait for the US Federal Reserve to become less hawkish.

On Tuesday morning in India, the rupee was quoted at 82.2225 per dollar, compared to 82.36 in the previous session.

Importers may start hedging positions at current levels and possibly as high as 82.

The outlook on the rupee could change if it manages to rise above 82, and only then are importers expected to hold back.

Dollar spikes after the US employment report are helping the rupee. The dollar index has fallen nearly 2% over the past two sessions on expectations that the Fed may pause its rate hike cycle after two 25 basis point hikes.

After two increases the Fed rate will reach 4.75-5%. The current implied high, according to Fed futures, is 4.9%.

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Several Fed officials have already indicated that the market valuation of the peak was in line with their expectations.

The FRB president thinks it makes sense for rates to be between 5-5.25%, and the FRB chief expects rates to rise above 5%, but not higher.

The dollar’s weakening trend is gaining momentum, and hopes for a pause in Fed rate hikes have become stronger.

If the US CPI is lower, then this phase will continue and could take USD/INR to 81.50 or lower.

Data on the consumer price index in the US for December will be published on Thursday. Analysts believe that headline inflation will fall to 6.5% from 7.1% in November.