The Indian rupee’s recent recovery may face challenges on Thursday as Asian currencies decline following a mixed signal from the Federal Reserve. The Fed’s latest dot plot suggested a dovish stance, while some analysts interpreted parts of Fed Chair Jerome Powell’s comments as hawkish.
According to the 1-month non-deliverable forward, the rupee is expected to open in the 87.88-87.92 range against the U.S. dollar, a slight decrease from 87.8150 in the previous trading session. The Fed announced a 25-basis-point interest rate cut, with the dot plot indicating two additional reductions this year, aligning with prior market expectations. The policy statement also acknowledged an increase in “downside risks to employment.”
Powell characterized the decision as a risk-management cut, which ING Bank noted was justified given the strength of the U.S. economy. Madhavi Arora, chief economist at Emkay Global Financial, pointed out that the dovish signal from the dot plot was undermined by Powell’s hawkish press conference, leading to uncertainty about whether Wednesday’s cut signifies the beginning of a prolonged rate-cutting cycle.
This mixed guidance resulted in volatility in U.S. markets, with the dollar index initially falling before regaining some ground. In Asian markets, currencies generally weakened while equities showed gains. U.S. equity futures rose following an almost flat session the previous night.
The rupee has appreciated for four consecutive sessions, rebounding from a record low of 88.4550 observed last week, supported by a softer dollar, inflows into debt, and position unwinding. A currency trader from a private sector bank indicated that the rupee is likely to weaken at the opening as a correction for its recent rally and in response to movements in Asian currencies. Nonetheless, the trader suggested that the drop might be constrained, as 88 has emerged as a significant support level for the rupee, making it unlikely to fall below that threshold.
Key indicators include:
- A one-month non-deliverable forward for the rupee at 88.01; an onshore one-month forward premium of 13.25 paise
- The dollar index rising to 96.98
- Brent crude futures declining 0.3% to $67.8 per barrel
- The yield on the ten-year U.S. note at 4.07%
- According to NSDL data, foreign investors purchased a net $186.9 million in Indian shares on September 16
- NSDL data also indicates that foreign investors bought a net $385 million in Indian bonds on the same date.
Published on September 18, 2025.
