Indian rupee rises, forward premiums lifted by improved odds of deeper Fed rate cut

The Indian rupee rose on Friday and dollar-rupee forward premiums climbed on renewed hopes of a 50-basis-point rate cut by the Federal Reserve next week, which also helped lift most Asian currencies.

The rupee was up 0.05 per cent at 83.9250 (Dh22.8678) as of 10.20am IST, compared with its close at 83.9650 (Dh22.8787) in the previous session.

The currency saw some relief after hovering close to the 84 mark for much of the week.

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Reports from the Financial Times and the Wall Street Journal signalled that the Fed's decision next week to cut rates by 25 or 50 bps was likely to be a close call.

US bond yields and the dollar index fell as investors raised the odds of a 50 bp cut to 43 per cent, up from 18 per cent a day earlier, according to CME's FedWatch tool.

Asian currencies rose, with the Korean won, up 0.8 per cent, leading the gains.

The shift also aided dollar-rupee forward premiums, with the 1-year implied yield rising 4 basis points to 2.27 per cent, the highest since May 2023.

Interest in building paid positions on far forwards is likely to continue but would prefer to "pay on dips" at current levels given the rise in recent sessions, a trader at a foreign bank said.

• India's August retail inflation above economists' expectations at 3.65% y/y