Indian Rupee Weakens Amid Firmer US Dollar Despite Strong Services Sector Expansion

The Indian Rupee (INR) faced weakening pressures against the US Dollar (USD) despite robust growth in India’s services sector. The S&P Global India Services Purchasing Managers’ Index (PMI) revealed that the country’s services sector expanded at its fastest rate in six months, reaching 61.8 in January, up from 59.0 in December. This final reading surpassed the preliminary estimate of 61.2, marking the 30th consecutive month of expansion above the 50-mark.

The survey highlighted a significant improvement in business confidence, reaching its highest levels since September. Services businesses expressed optimism, attributing it to strong demand, anticipated investment, and productivity gains driving output growth. The positive sentiment comes as India demonstrates resilience amid challenges like high inflation and monetary policy tightening by the Reserve Bank of India (RBI).

Despite the domestic economic strength, the Indian Rupee faced headwinds from the firmer US Dollar. Additionally, concerns arose about the potential impact of geopolitical conflicts in the Middle East on Indian growth. Disruptions in Red Sea shipping routes could lead to increased consumer prices, posing a threat to the overall economic outlook.

Looking ahead, the focus shifts to the RBI Monetary Policy Committee (MPC) meeting scheduled from February 6 to 8. Market expectations lean towards the MPC maintaining the repo rate unchanged at 6.5%, continuing a trend of stability in monetary policy amid evolving economic conditions.

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