Rupee opens marginally higher against US dollar

Emkay Research analysts say global picture falls short of the conditions historically associated with sustained dollar weakness.

The Indian rupee opened marginally higher against the US dollar, tracking gains in the local equities and Asian currencies market. At 9.10 am, the rupee was trading at 81.92 to a dollar, up 0.10 percent from its previous close.

As expected, the Federal Reserve raised interest rates by 25 basis points on July 26. The post-meeting statement saw a notable change in the description of economic growth, which was upgraded from "modest" to "moderate" starting June. The statement indicated a bias towards "additional policy firming".

Despite the overall hawkish tone of the statement, chairman Jerome Powell's post-meeting press conference leaned slightly towards the dovish side.

While the Federal Open Market Committee (FOMC) is not committed to taking further actions, Powell said he observed encouraging signs in both the labour market and inflation rates.

The staff were seeing a significant slowdown in growth later in 2023 but were no longer forecasting a recession, he said.

In a note to investors, Emkay Research said, "The ECB is poised to also raise the policy rate 25bp (basis point) and deliver relatively hawkish guidance at today’s meeting.”

The European Central Bank will opt for a hike again in September but slowing growth and core inflation would warrant a pause next quarter, it said.

FX (foreign exchange) markets had already taken cues from the diverging paths of central banks. “We respect the price action, but it remains the case that the rest of the global picture falls short of the conditions more historically associated with sustained USD weakness,” Emkay Research analysts said.

“We do not fall in the dollar weakness camp. For us, the core of the USD-bullish-to-neutral view has been global in nature, following China’s downdraft and the subsequent weakness in Europe in 2Q.”

Asian currencies were trading higher. The Malaysian ringgit rose 0.47 percent, the Japanese yen gained 0.37 percent, China Offshore 0.32 percent, the Thai Baht 0.3 percent, the South Korean won 0.29 percent, while the Singapore dollar and the Philippines peso were up 0.2 percent each. The Indonesian rupiah was up 0.14 percent.

The dollar index, which measures the greenback’s strength against major currencies, was trading at 100.84, down 0.05 percent from its previous close of 100.88.