Indian rupee set for cautious open following U.S. inflation data

The Indian rupee is expected to open mostly steady to slightly weaker against the U.S. dollar in the upcoming trading session. This follows U.S. inflation data that came in higher than expected, hinting that the Federal Reserve may hold off on cutting interest rates.

Adding to the cautious mood, President Donald Trump’s announcement of upcoming reciprocal tariffs has also weighed on sentiment.

According to Reuters, the 1-month non-deliverable forward indicates an opening range for the rupee at 86.88-86.92 to the dollar, compared with Wednesday’s close of 86.8925. The Indian currency has experienced a turbulent period, influenced by substantial interventions from the Reserve Bank of India (NSE:BOI) (RBI).

Throughout the week, the rupee has fluctuated within a broad 1.5-rupee band, ranging from 86.50 to 88, with the 1-month realized volatility reaching its highest level in almost two years.

A bank-based currency trader noted that the market is likely to be cautious due to the RBI’s dissatisfaction with the rapid depreciation of the rupee. The trader mentioned that the market’s "next excitement" hinges on the details of Trump’s tariff plans.

Trump’s tariff announcement is expected before Indian Prime Minister Narendra Modi’s visit to the U.S. on Thursday. The White House confirmed the timing of the announcement, which raises concerns about the potential for an escalated trade conflict.

The U.S. consumer price index (CPI) reported a 0.5% increase, surpassing the anticipated 0.3% and marking the most significant monthly rise since August 2023. ING Bank described this inflation report as "a clear red alert to the Fed," impacting expectations for rate cuts. Currently, futures markets are pricing in only one rate cut from the Fed this year.

Other key indicators include the one-month non-deliverable rupee forward at 87.10, with the onshore one-month forward premium at 22.5 paise. The dollar index has fallen to 107.79, while Brent crude futures have decreased by 0.9% to $74.5 per barrel. The ten-year U.S. note yield stands at 4.6%, having risen by 10 basis points on Wednesday.

According to NSDL data, foreign investors sold a net $470.6 million worth of Indian shares and $57.1 million worth of Indian bonds on February 11.

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