The Indian rupee gains on Wednesday as the U.S. dollar continues to weaken, moving closer to a key resistance level. This increase comes largely due to the rally in the Chinese yuan and growing expectations of a substantial Federal Reserve rate cut. As the rupee traded at 83.5350 by 11:34 a.m. IST, it marked an improvement from the previous session's 83.67, bringing it near the 83.50 level that market participants are keenly watching.
Although the rupee has shown strength, breaking through the 83.50 region remains a challenge. Last Friday, the rupee briefly crossed this threshold but was held back by dollar outflows and importers’ hedging activities. According to Kunal Kurani, assistant vice president at FX advisory firm Mecklai Financial, the 83.40-83.50 range will be particularly difficult for the rupee to overcome. Kurani further noted that the Reserve Bank of India would likely need to stay away. The dollar index would need to fall below 100 decisively for the rupee to gain momentum beyond this level.
The weakening of the U.S. dollar has been driven by rising expectations that the Federal Reserve will introduce a significant rate cut. On Tuesday, weak consumer confidence data increased the chances of a 50-basis-point rate cut in November to over 60%. As a result, the dollar index has hovered around 100.30, near its lowest point this year.
The U.S. dollar’s struggles have also been exacerbated by the Chinese yuan's rally. The offshore yuan briefly broke the psychologically significant 7.00 mark against the U.S. dollar. Additionally, optimism surrounding Beijing's new stimulus measures has caused Chinese equities to surge, with experts predicting that the stimulus will positively impact other Asian currencies. In a note, MUFG Bank stated that countries with close economic ties to China would benefit the most from this development.
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