MUMBAI The Indian rupee rose briefly against the dollar above a level that's closely watched by traders but was unable to pierce it convincingly.
The rupee was trading at 81.25 per U.S. dollar by 10: 32 a.m. IST compared to 81.36 in the previous session. The local currency has reached an intraday high of 81.13.
Speculators were likely to be encouraged by the move below 81.20 for USD INR after a few failed attempts, said a trader at a private sector bank. They said that the afternoon could surprise us, as there may not be much in the 81.20 breach.
A fall in the Chinese yuan along with rising oil prices could prevent the rupee from having a go at the 81 level. The offshore yuan declined below 6.79 to the dollar, while Brent crude futures rose to near $86.50 a barrel.
The dollar index was slightly higher and the Treasury yields went up near-maturity. The outlook against its major peers is challenging due to expectations that the U.S. Federal ReserveFederal Reserve is almost done with its rate hike cycle.
The peak Fed rate expectations have dropped below 5 per cent and futures are pricing in a cut of about 50 basis points bps in the second half of 2023. There have been a string of weak U.S. economic data, from retail sales to services to housing, which has prompted investors to increase their bets on Fed rate cuts later in 2023.
The Fed's policy decision on February 1 will give investors more insight into its thinking on the risks of growth and inflation. The central bank is expected to hike rates by 25 bps in February, which is a further downshift from the 50 bps it opted for at the last meeting.