Indian rupee slips as dollar gets Fed hike expectations tailwind

Mumbai observed the Indian rupee slipping slightly on Wednesday, mirroring the downtrends of Asian currencies as expectations of further US Federal Reserve rate hikes bolstered the dollar's strength. The Indian rupee slipped 0.1% to 95.74 per dollar from a previous close of 95.59. Asian currencies witnessed a decline ranging from 0.1% to 0.3% as investors monitored oil prices and Fed rate expectations.

The dollar index surged more than 1% since last week's Fed rate hike, as speculation on additional tightening intensified. Interest rate futures markets had already accounted for about 75 basis points of hikes over the ensuing 12 months. ANZ analysts noted, "The US Federal Reserve has initiated rate hikes, and markets are pricing in more hikes.

If the RBI fails to act, India's monetary policy divergence from tightening global financial conditions would widen." Traders attributed the rupee's limited losses to dollar sales by state-run banks, likely acting on behalf of the Reserve Bank of India, and dollar-rupee swap operations to alleviate excess liquidity in the banking system.

The swaps primarily targeted maturities of January 2027 and October 2027, according to a trader at a Mumbai-based bank. Meanwhile, oil prices remained under $100 per barrel, buoyed by enhanced Gulf crude supplies and optimism over a diplomatic resolution to the US-Israeli conflict with Iran.