Indian Rupee (INR) Strengthens on Equity Inflows and Weaker US Dollar (USD)

The Indian Rupee (INR) saw gains on Tuesday, supported by anticipated equity inflows and US Dollar (USD) sales by state-run banks. The latest data from India’s economic indicators showed a steady performance, with the HSBC Manufacturing Purchasing Managers Index (PMI) maintaining its level at 59.1 in April, while the Services PMI increased to 61.7 from the previous reading of 61.2. The INR retained its slight upward momentum following the mixed PMI figures. Additionally, the decline in oil prices, amid diminishing concerns about a broader conflict in the Middle East, further bolstered the INR’s recovery.

However, analysts caution that the strengthening of the local currency may be short-lived, as the hawkish reassessment of US Federal Reserve (Fed) rate cut expectations continues to support the USD. Arnob Biswas, head of foreign exchange research at SMC Global Securities, emphasized that the USD’s upward trend is likely to persist due to the ongoing repricing of Fed rate cut expectations.

Investors are closely monitoring the release of the US S&P Global PMI for April later in the day, with particular attention on Friday’s final reading of the US March Personal Consumption Expenditures Price Index (PCE). Stronger-than-expected US economic data could fuel speculation that the Fed will postpone its rate cut cycle, thereby strengthening the Greenback further.

In light of these factors, the outlook for the INR remains contingent on developments in both domestic and global economic indicators, as well as shifts in market sentiment towards the USD. Traders will continue to assess the impact of geopolitical tensions and central bank policies on currency markets, with a keen eye on upcoming data releases for further direction.

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