Ella 
USD/INR hovered around 82.80 during the Asian session on Tuesday, struggling to extend the second day’s modest gains. Mild U.S. employment data raised the prospect of a pause at the Federal Reserve’s September meeting.
However, the current market bet on the Fed’s policy is that the Fed will raise interest rates by 25 basis points in December 2023. In addition, Cleveland Federal Reserve President Loretta J. Mester supported the Fed’s hawkish bias in her speech on Friday and denied the prospect of an interest rate cut. Market participants are awaiting U.S. factory orders (July) to gain clarity on inflation and the economic situation.
Analysts at Bank of Tokyo-Mitsubishi UFJ expect USD/INR to remain at 82.70 by the end of the third quarter before falling to 81.50 by the end of the first quarter of 2024. Their short-term outlook on the Indian rupee is neutral. Bank of Tokyo-Mitsubishi UFJ analysts also said the Indian rupee will face some headwinds in the near term as inflation recorded higher than expected in July. They also said they expected the Reserve Bank of India to remain hawkish in the long term.
The U.S. Dollar Index (DXY), an indicator that compares the U.S. dollar against six other major currencies, was trading higher at around 104.20 at press time. Modest labor force growth in August and a rebound in U.S. bond yields helped the dollar remain strong.
The safe-haven dollar came under pressure as market optimism improved as China rolled out stimulus measures and Country Garden reached an agreement with creditors to extend the repayment terms of onshore debt worth 3.9 billion yuan ($536 million). Positive market sentiment is likely to support Asian currencies including the Indian rupee. In addition, the Chinese government plans to relax restrictions on home purchases to support economic growth.
