Hawkish Federal Reserve expectations drive the US Dollar to annual highs, pressuring the Indian Rupee ahead of key US inflation data.
The Indian Rupee weakens against the US Dollar, with the USD/INR pair trading near 94.85 in early Wednesday trade. The US Dollar Index (DXY) rises 0.1% to 101.50, bolstered by strong bets on Federal Reserve rate hikes this year.
Markets now price an 86% chance of at least one Fed rate hike in 2024, with a 48.3% probability of two hikes. This marks a sharp reversal from earlier expectations of rate cuts, driven by rising inflationary pressures. Core US inflation hit a seven-month high of 2.9% in May, reinforcing hawkish sentiment.
Investors await Thursday’s US Personal Consumption Expenditure (PCE) data, with core PCE inflation expected at 3.4% YoY. Lower oil prices may cushion the Rupee’s decline but are unlikely to offset broader USD strength.