The INR rallied after a US-Iran deal announcement reduced Fed rate hike expectations to 16 bps from 24 bps by year-end.
The Indian Rupee strengthened sharply on Thursday following the announcement of a US-Iran deal, which eased geopolitical tensions and sent oil prices lower. The development led markets to scale back Federal Reserve rate hike expectations to 16 bps by year-end, down from 24 bps prior to the deal.
The Rupee’s gains were driven by its historical correlation with oil prices, as lower crude costs reduce inflationary pressures. Meanwhile, the Fed is expected to hold rates steady at its Wednesday meeting and may soften its easing bias, though markets remain cautious about any hawkish signals.
Oil prices are expected to continue declining, potentially reaching pre-war levels. However, a shift from a negative supply shock to a positive demand shock could later reignite rate hike concerns.