US Dollar to Indian Rupee (USD/INR) Exchange Rate Jumps, Boosted by FOMC Statement
The Rupee jumped to a high of 60.1712 on Thursday as investors reacted to the Federal Open Market Committee meeting policy statement.
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In a quiet news week for India, movement in the Rupee has largely been dictated by global economic developments, and the emerging market currency was supported overnight as the FOMC adopted a more cautious tone than many industry experts had anticipated.
After the US consumer price index (published on Tuesday) showed that consumer prices accelerated by more than anticipated in May, giving the FOMC more scope to increase interest rates, it was hoped that the Fed would take a different stance on increasing borrowing costs.
However, Fed Chairwoman Janet Yellen dismissed concerns regarding labour-market slack and price pressures before restating that the central bank would be keeping interest rates at record lows for some time to come.
The US Dollar broadly softened after Yellen’s statement, to the benefit of emerging-market and higher-risk assets like the Rupee.
As stated by currency strategist Sue Trinh; ‘The markets latched on to the lower implied terminal Fed funds rate and also Yellen’s less-than-optimistic slant on the economy. The bottom line is the US Dollar’s weaker, in line with the very strong bid in US Treasuries.’
In the immediate aftermath of the FOMC statement the Rupee advanced by 0.8 per cent against the US Dollar, its most considerable advance against the North American asset for a month.
The Rupee had previously dropped to a seven-week low against its US counterpart as a result of fears surrounding the domestic economy.
Some industry experts are concerned that the escalating tensions in Iraq will cause oil prices to shoot up and Indian inflation to quicken, eroding India’s trade balance in the process.
One Mumbai-based industry expert said this of the Rupee’s reaction to the US development; ‘The FOMC statement on interest rates is clearly positive for the Rupee. A stable and improving US economy is good for India’s exports and inflows.’
Meanwhile, the GBP/INR exchange rate shed 0.16 per cent on Thursday as investors’ appetite for the Pound was dampened by the news that UK retail sales declined for the first time in four months in May.
The report follows yesterday’s slightly cautious Bank of England meeting minutes and supports the case for the central bank leaving interest rates on hold for the next few months at least.
Later today the US initial jobless claims figures could cause additional USD/INR fluctuations.
The British Pound is currently trading against the Rupee in the region of 102.2500.
The US Dollar is currently trading against the Rupee in the region of 60.0150.