Rupee slips amid decline in Asian peers amid moderation in Fed rate cut hopes

The rupee weakened on Tuesday reflecting a trend seen across its Asian counterparts due to diminishing expectations of aggressive rate cuts by the US Federal Reserve.

As of 10:00 am, the rupee was at 83.1225 against the US dollar, marking a 0.07 per cent decline compared to its previous close at 83.0650 on Friday. Monday's closure of Indian markets for a local public holiday contributed to the subdued activity.

The dollar index showed a decrease, quoted at 103.21, while several Asian currencies saw marginal declines. Notably, the offshore Chinese yuan saw a nearly 0.3 per cent increase, fuelled by reports that China is contemplating a rescue package for its struggling stock markets.

The Japanese yen remained relatively stable following the Bank of Japan's decision to maintain its ultra-loose monetary policy on Tuesday.

Market analysts anticipate the rupee to fluctuate within the range of 83.05 and 83.20 on Tuesday, with routine dollar demand being a key driver of price movements, according to a foreign exchange trader at a state-run bank.

The ongoing reassessment of rate cut expectations by the US Federal Reserve is expected to limit short-term gains for Asian currencies. Robust US economic data and resistance from Fed officials have led investors to scale back their expectations of aggressive rate cuts. Currently, there is a 56.5 per cent probability that the Fed will leave rates unchanged in March, up from only 19 per cent as of January 12.

Forward premiums for the rupee eased, with the 1-year implied yield falling by 1 basis point to 1.86 per cent. Looking ahead, Amit Pabari, Managing Director at FX advisory firm CR Forex, suggests that a convincing breach of the 82.80 level could pave the way for further rupee appreciation over the medium term.

Investors are also keeping a close watch on the European Central Bank's upcoming monetary policy decision on Thursday and the highly anticipated US personal consumption expenditure (PCE) inflation data scheduled for release on Friday. These events are likely to influence market sentiment and currency movements in the near term.

(With Reuters inputs)