- The Indian Rupee falls marginally against the US Dollar ahead of the RBI’s monetary policy announcement on Wednesday.
- Investors are divided on whether the RBI will cut interest rates or hold them steady.
- The US Dollar is under pressure amid the risks of a US government shutdown.
The Indian Rupee (INR) declines against the US Dollar (USD) during late trading hours on Monday. The USD/INR rises to near 89.00, even as the US Dollar extends its correction, suggesting weakness in the Indian Rupee.
The Indian currency faces selling pressure amid caution ahead of the monetary policy announcement by the Reserve Bank of India (RBI) on Wednesday. Financial market participants are mixed about whether the RBI will cut its Repo Rate further.
Analysts at Citi have stated that the RBI could opt for an insurance cut in the wake of trade tensions between the United States (US) and India over New Delhi buying Oil from Russia or deliver a dovish pause. This year, the RBI has already reduced its Repo Rate by 100 basis points (bps) to 5.5%.
On the contrary, analysts at HDFC Securities have predicted that upbeat Gross Domestic Product (GDP) growth and the overhaul of the Goods and Services Tax (GST) structure to boost consumption, along with strong festive demand, could restrain officials from supporting further interest rate cuts.
Meanwhile, the continuous outflow of foreign funds from the Indian stock market has remained a major drag on the Indian Rupee. On Friday, Foreign Institutional Investors (FIIs) sold equity shares worth Rs. 5,687.58 crores of Indian equity shares. So far in September, FIIs have pared stake worth Rs. 30,141.68 crores.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.22% | -0.37% | -0.51% | -0.09% | -0.29% | 0.10% | -0.22% | |
| EUR | 0.22% | -0.16% | -0.44% | 0.12% | -0.07% | 0.02% | -0.02% | |
| GBP | 0.37% | 0.16% | -0.20% | 0.28% | 0.03% | 0.35% | 0.14% | |
| JPY | 0.51% | 0.44% | 0.20% | 0.45% | 0.25% | 0.30% | 0.33% | |
| CAD | 0.09% | -0.12% | -0.28% | -0.45% | -0.16% | -0.22% | -0.14% | |
| AUD | 0.29% | 0.07% | -0.03% | -0.25% | 0.16% | -0.06% | 0.05% | |
| INR | -0.10% | -0.02% | -0.35% | -0.30% | 0.22% | 0.06% | -0.69% | |
| CHF | 0.22% | 0.02% | -0.14% | -0.33% | 0.14% | -0.05% | 0.69% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: US government shutdown risks weigh on US Dollar
- The US Dollar corrects further against its peers at the start of the week amid risks of a US government shutdown on Wednesday, as the short-term funding bill has yet to be passed by the House or Senate.
- The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% lower to near 97.90 at the time of writing. The USD Index started correcting from Thursday after failing to extend an over-a-week-long upside move above 98.60.
- Republicans need at least 60 votes to pass the funding bill to avert a government shutdown, and for that, they need some Democrats to support the bill despite having a majority in the Senate and the House of Representatives. In response, Democrats have declined to support the bill as they want Republicans to undo cuts in the healthcare budget announced recently.
- This week, investors brace for significant volatility in the US Dollar amid a US data-packed week. Market participants will pay close attention to the US labor market-related data to get cues about the current status of the job market. Lately, comments from Federal Open Market Committee (FOMC) members, including Chair Jerome Powell, have signaled that they are more concerned about slowing labor demand and inflation remaining above the central bank’s 2% target.
- On Friday, Fed Vice Chair for Supervision Michelle Bowman argued in favor of reducing interest rates amid growing labor market risks. “We are at serious risk of already being behind the curve in addressing deteriorating labor market conditions,” Bowman said, and added, “Should these conditions continue, I [Bowman] am concerned that we will need to adjust policy at a faster pace and to a larger degree going forward,” Reuters reported.
Technical Analysis: USD/INR holds key 20-day EMA
USD/INR trades sideways from the last three trading days after posting a fresh all-time high around 89.12 last week. The upward-sloping 20-day Exponential Moving Average (EMA) near 88.42 signals more upside in the pair.
The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the round figure of 90.00 would be the key hurdle for the pair.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
