By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee saw a muted reaction to the April U.S. inflation data, leading traders to look for new triggers to break the current narrow range.
The rupee was at 81.9825 to the U.S. dollar by 10:12 a.m. IST on Thursday, barely changed from the previous session.
The U.S. headline annual inflation rate came in slightly below expectations, increasing the already high probability that the U.S. Federal Reserve will pause in June.
The month-on-month change in the headline and the core rate were in line with forecasts.
“Since there was no element of surprise, U.S. inflation did not produce any appreciable volatility,” Anindya Banerjee, head research – FX and interest rates at Kotak Securities, said.
He pointed out that rupee and majority of the important currency pairs are constrained by a range. The USD/INR is range-bound between 81.60 and 82.10 levels while the dollar index is oscillating between 100.70 and 102.70.
“You have to wonder what will be the trigger to change this. Fed pause is now fully priced in, so that can’t be it,” a spot dealer said.
“Unless we see a sizeable risk off on U.S. growth worries, you have to keep playing the current range.”
Following the U.S. inflation data, investors are pricing in an over-90% chance that the Fed will not hike rates at the June meeting. The question is when the U.S. central bank will pivot and deliver rate cuts.
Futures indicate a rate cut in September.
That may be a little early, but November and December are looking “decent bets” for the Fed moving policy to a more neutral setting, ING Bank said in a note.
Rupee forward premiums rose, tracking the overnight fall in U.S. yields. The 1-year implied was up 4 bps at 2.17%.
(Reporting by Nimesh Vora; Editing by Varun H K)
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