Rupee poised to weaken after dollar jump on hawkish Federal Reserve

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee is expected to open lower against the U.S. currency on Friday, following a surge on the dollar index after two Federal Reserve officials said they preferred bigger rate increases to tackle inflation.

Non-deliverable forwards indicated the rupee will open at 82.80-82.85 to the dollar, compared with 82.7175 in the previous session.

The dollar index was up at 104.26, while the Korean won tumbled 1%, dragging Asian currencies lower.

The rupee was expected to fall less than the Asian peers , considering past price action and the 82.90-83 levels, a trader at a Mumbai-based bank said.

Two Federal Reserve officials said on Thursday the U.S. central bank should have lifted interest rates more than the 25 basis points it did at its last meeting, and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.

The 2-year Treasury yield is hovering near its highest level in three months and the 10-year has climbed to 3.90%.

The 10-year is up almost 60 bps from its recent lows.

Investors also avoided Treasuries after U.S. data released on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, while monthly producer prices increased by the most in seven months in January.

Futures are now pricing a Fed terminal rate of near 5.30% and about 30 bps of rate cuts from July to December this year.

"Hopes of an early Fed pivot have vanished," DBS Group Research said in a note to clients on Friday.

"Between a firm labour market and persistent price pressures, U.S. rates are now markedly higher than where they were just three weeks ago."

KEY INDICATORS:

** One-month non-deliverable rupee forward at 82.90; onshore one-month forward premium at 11.50 paise

** USD/INR NSE Feb futures settled on Thursday at 82.72

** USD/INR Feb forward premium at 3.25 paise

** Dollar index up at 104.28

** Brent crude futures down 0.6% at $84.6 per barrel

** Ten-year U.S. note yield at 3.89%

** SGX Nifty nearest-month futures down 0.5% at 17,971

** As per NSDL data, foreign investors bought a net $93mln worth of Indian shares on Feb. 15

** NSDL data shows foreign investors sold a net $36.9mln worth of Indian bonds on Feb. 15

 

(Reporting by Nimesh Vora; Editing by Nivedita Bhattacharjee)