Anna 
During the early European trading hours on Monday, the USD/INR exchange rate experienced a slight decline, hovering around 83.20. The dip was attributed to an improved risk appetite in the market, coupled with subdued performance of the US Dollar.
The recent weakness in the Greenback can be linked to softer consumer inflation data in the United States for the month of April. This data has fueled speculation among investors regarding potential rate cuts by the Federal Reserve later in 2024. According to the CME FedWatch Tool, there has been a slight increase in the probability of a 25 basis-point rate cut by the Fed in September, now standing at 49.0%, up from 48.6% a week earlier. If realized, such monetary policy adjustments could further undermine the strength of the US Dollar against the Indian Rupee.
However, it’s worth noting that the Federal Reserve remains cautious about the inflationary outlook and the timing of any rate adjustments this year. Federal Reserve Board of Governors member Michelle Bowman recently highlighted concerns about the trajectory of inflation, suggesting that progress in this area may not be as steady as initially anticipated. Bowman emphasized that while there was a temporary decline in inflation last year, there has been no significant improvement in the inflationary landscape this year.
Meanwhile, in India, financial markets were closed on Monday as general elections were held in the financial hub of Mumbai and several other states. This closure limited the scope for intervention by the Reserve Bank of India (RBI) in the currency markets to influence the Indian National Rupee (INR).
Despite the challenges, the INR has shown resilience, supported by a robust Indian economy and hawkish expectations regarding the monetary policy stance of the RBI. In its latest meeting, the RBI underscored the potential impact of higher food prices on inflation, signaling a commitment to maintaining elevated interest rates for an extended period to manage inflationary pressures effectively.
Looking ahead, market participants will closely monitor developments related to the Federal Reserve’s monetary policy outlook, as well as the outcome of the general elections in India. Any further indications of potential rate cuts by the Fed could weigh on the USD/INR exchange rate, while a continued hawkish stance from the RBI could provide support for the Indian Rupee.
Overall, the USD/INR exchange rate is expected to face downward pressure in the near term, driven by factors such as the subdued performance of the US Dollar and cautious monetary policy considerations by central banks. However, geopolitical developments and domestic economic indicators will also play a role in shaping the direction of the currency pair in the days ahead.
