MUMBAI, Aug 25 (Reuters) – The Indian rupee edged higher on Monday and forward premiums climbed after Federal Reserve Chair Jerome Powell set the stage for a September rate cut, pushing U.S. yields and the dollar lower.
The rupee was quoting at 87.4350 to the U.S. dollar at 11.10 a.m. IST, up from the close of 87.53 on Friday.
The local currency hit a intraday high of 87.3450 before running into dollar-buy orders from importers.
The rupee drew support from Powell’s remarks at Jackson Hole, which fortified expectations of a September rate cut and sent the dollar index and U.S. Treasury yields lower. The dollar index dropped nearly 1% on Friday while U.S. Treasury yields dropped.
The 2-year Treasury yield declined more than 10 basis points amid Powell comments that the “the baseline outlook and shifting balance of risks may warrant adjusting our policy stance”.
The dollar/rupee forward premiums surged, tracking the fall in U.S. yields, with the 1-year implied rising 6 basis points to 2.19%, its highest in three months.
Traders are now pricing in 80% odds of a quarter-point rate cut at the September 17 policy meeting, and a cumulative 48 basis points of reductions in 2025, according to LSEG data.
Despite Powell’s dovish tilt, traders said the rupee’s upside is likely capped by the overhang of U.S. tariffs.
Indian goods face additional U.S. tariffs of up to 50% with effect from Wednesday. Washington had already levied 25% tariffs on Indian goods — steeper than those faced by many other large trade partners — and the latest slated increase comes in response to New Delhi’s continued purchases of Russian crude.
Signs that progress toward a Ukraine-Russia peace deal has stalled have reinforced expectations that the additional U.S. tariffs on Indian goods will be implemented. (Reporting by Nimesh Vora; Editing by Janane Venkatraman)
