Anna 
During the early European session on Thursday, the USD/INR pair crept higher towards the 83.50 level, benefitting from a corrective bounce in the US Dollar (USD) following recent losses over the past two days. The USD faced depreciation on Wednesday amidst mounting expectations of multiple rate cuts by the Federal Reserve (Fed) in 2024, spurred by lower-than-expected monthly Consumer Price Index (CPI) and Retail Sales data from the United States (US).
In April, US CPI grew by a modest 0.3% month-over-month, below the forecasted 0.4%, while Retail Sales stagnated, falling short of the anticipated 0.4% increase.
The US Dollar Index (DXY), which measures the USD against six major currencies, hovered around 104.30, supported by improved US Treasury yields. At the time of reporting, the 2-year and 10-year yields on US Treasury bonds stood at 4.73% and 4.33%, respectively.
Meanwhile, recent data from India’s Ministry of Commerce and Industry revealed that the country’s Trade Deficit expanded to $19.1 billion in April, up from the previous reading of $15.6 billion. This rise was attributed to lower exports and a surge in gold imports.
A foreign exchange trader at a private bank highlighted that the Indian National Rupee (INR) might see some strengthening, but significant movements are unlikely given the prevailing broad USD short positions. Forward premiums on the USD/INR pair witnessed an increase, with the one-year implied yield rising by 2 basis points to 1.70%, supported by lower US bond yields. This dynamic contributes to the cautious outlook on the INR’s performance against the USD in the near term.
