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The Indian rupee is expected to face challenges on Wednesday, influenced by the rise in U.S. Treasury yields and a generally weaker trend in Asian currencies.
Forecasts from non-deliverable forwards suggest that the rupee's opening rate against the U.S. dollar will be around 83.26-83.2650, slightly up from the previous session's rate of 83.25.
A currency trader at a bank noted, "We will have one more day in which it (USD/INR) will find a lot of buyers. That buying will not amount to much until the RBI (Reserve Bank of India) allows 83.30 to be taken out." Traders have observed that the Reserve Bank of India has been consistently intervening to prevent the rupee from slipping below its record low of 83.29.
In the Asian market, the 10-year U.S. yield saw an increase, and the dollar index edged higher. Most Asian currencies faced a decline, ranging between 0.2% and 0.6%.
The Federal Reserve's decision later in the day is widely anticipated to maintain the policy rate within the range of 5.25-5.50%. It is unlikely that the central bank will provide updates on economic or rate forecasts.
Some analysts anticipate that the Fed may revise its guidance regarding the need for additional rate hikes in response to the tightening of financial conditions resulting from the increase in long-maturity U.S. yields. Morgan Stanley, for example, expects the Federal Open Market Committee to adjust its forward guidance from "In determining the extent of additional policy firming that may be appropriate" to "In determining the extent of policy firming..." by removing the word "additional."
Morgan Stanley also anticipates a similar tone from Fed Chair Powell's press conference as in his recent speech. This includes emphasizing balanced risks to the economic outlook and a limited appetite for near-term rate hikes given the tighter financial conditions.
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