By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee touched a more than two-week high on Wednesday, boosted by a slump in the U.S. dollar ahead of an expected rate cut by the U.S. Federal Reserve and optimism over U.S.-India trade talks.
The rupee touched a peak of 87.73 against the U.S. dollar, its strongest since August 29, in early trading and was last up 0.3% at 87.7525 as of 10:50 a.m. IST.
The euro had surged to a four-year peak against the dollar in the previous session as investors positioned for an expected 25-basis-point rate cut by the Fed later in the day.
Against a basket of peers, the dollar was last at 96.69, pinned near its lowest level since early July after slumping 0.7% in the previous session.
The rupee’s move on Wednesday has been largely tracking weakness in the dollar and positive sentiment on account of trade talks between India and the U.S., a senior trader at a Mumbai-based bank said.
The spotlight on the day will also be on whether policymakers considered a bigger 50 bp cut and their updated summary of economic and interest rate projections. Money markets are currently pricing in a 4% chance of an outsized rate cut.
“Unless the Fed surprises with a hawkish cut, the outlook for the USD remains weak, with profit-taking providing an opportunity to re-establish shorts,” analysts at DBS said in a note.
Meanwhile, dollar-rupee far forward premiums continued to nudge higher on the back of a decline in near-tenor U.S. Treasury yields.
The 1-year dollar-rupee implied yield was last up 2 bps at 2.36%. The 1-year U.S. Treasury yield was at 3.62% after declining 2 bps in the previous session.
(Reporting by Jaspreet Kalra; Editing by Janane Venkatraman)
