The Indian rupee is set to weaken further, breaking past the 86 level against the U.S. dollar. This decline follows a robust U.S. jobs report that bolstered the Federal Reserve’s hawkish outlook. According to the one-month non-deliverable forward, the rupee will open at 86.10-86.12, marking an all-time low compared to the previous session's 85.9650.
In December, U.S. employers added 256,000 jobs, far exceeding the 160,000 predicted by economists. Additionally, the unemployment rate dropped unexpectedly to 4.1%. For traders already holding bearish bets on the rupee, these figures provide another compelling reason to continue. A currency trader noted that while the rupee has absorbed many negative factors, a correction could be overdue.
Morgan Stanley highlighted that the strong labor market report shifts the focus back to inflation. This reduces the likelihood of immediate rate cuts by the Federal Reserve. Interest rate futures show market participants expect only one rate cut this year. The Fed's decision to cut rates thrice last year now appears unlikely to be repeated soon.
The dollar index surged to a two-year high of nearly 110 on Friday. Simultaneously, the 10-year U.S. Treasury yield climbed to a 14-month high. These factors continue to support the dollar, alongside anticipation of new tariffs under President-elect Donald Trump.
Several indicators signal further pressure on the rupee. The one-month rupee forward is at 86.34, while the onshore forward premium remains at 23.50 paise. Brent crude prices also rose 1.5% to $81 per barrel, and foreign investors sold $818.5 million worth of Indian shares on January 9.
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The Indian rupee weakens past 86/USD as robust U.S. jobs data solidify the Federal Reserve's hawkish stance. Learn more!
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