Rupee Plunges Near One-Month Low After Soft US Inflation Tempers Rate Hike Fears, Amid Rising Crude Prices

Rupee Plunges Near One-Month Low After Soft US Inflation Tempers Rate Hike Fears, Amid Rising Crude Prices​

Currency Movement and Key Market Drivers​

The Indian rupee opened marginally stronger on July 15th, trading at ₹96.17 against the dollar, down from ₹96.20 in the preceding session. This move was largely attributed to softer US inflation data, which moderated expectations regarding a near-term interest rate hike by the Federal Reserve.

Despite this supportive news flow from the US market, the rupee experienced significant pressure during trading, falling to more than a one-month low on Wednesday. The global commodity backdrop, particularly concerning crude oil prices, introduced volatility and immediate headwinds for the currency.

Impact of Softening US Inflation Data​

Consumer price inflation in the United States slowed unexpectedly in June. CPI rose by 3.5 percent, a slowdown from 4.2 percent recorded in the previous month. Furthermore, core inflation eased to 2.6 percent from 2.9 percent.

This cooling inflationary trend has reduced the likelihood of an immediate rate hike by the Federal Reserve. Consequently, expectations for future interest rate decisions have shifted dramatically, supporting riskier asset classes globally.

Outlook on US Interest Rate Decisions​

The probability of a July rate hike has fallen to 12 percent from its prior standing at 40 percent. Similarly, the odds for a September hike eased down to 59 percent from earlier expectations of 74 percent. These shifts indicate a more cautious approach by global central banks following the inflation print.

Crude Oil Concerns and Rupee Pressure​

Nevertheless, market participants remain anxious over the trajectory of Brent crude oil prices. The commodity has hovered near the $86 per barrel mark, driven by renewed geopolitical tensions between the US and Iran.

The sustained rise in oil prices is significantly increasing the demand for dollars from Indian oil importers. This increased dollar requirement continues to exert immediate downward pressure on the local currency.

Technical Analysis of Rupee Trend​

Amit Pabari, managing director at CR Forex Advisors, provided a technical assessment of the rupee's movement. He noted that the range between Rs 95.80 and Rs 96.00 has been breached by the pair.

If the rupee successfully sustains its trading level above this critical barrier, further upward appreciation cannot be ruled out, according to Pabari.