Rupee's Rebound: Focus Shifts to India-Pakistan Tensions

By Nimesh Vora

MUMBAI (CryptoTrendLens.blogspot.com) – The Indian rupee may see a slight increase when trading opens on Thursday. Traders will be monitoring the ongoing tensions between India and Pakistan, as well as the performance of the U.S. dollar, which has gained strength after the conclusion of the Federal Reserve’s latest monetary policy meeting.

The 1-month non-deliverable forward suggested that the rupee would start trading at 84.72-84.74 against the U.S. dollar, as opposed to 84.8250 in the prior session.

The Indian rupee on Wednesday posted its sharpest one-day percentage decline in nearly a month after India launched missile strikes on Pakistan and Pakistan-administered Kashmir.

In reaction, Pakistan vowed to retaliate, as defense minister Khawaja Muhammad Asif informed broadcaster Geo News that Islamabad would aim at Indian military facilities rather than targeting civilians.

Although Pakistan has pledged to respond, the delayed reaction may provide some respite for the rupee, according to a currency trader at a bank.

“If Pakistan proceeds and attacks India, the value of the rupee will face additional strain,” he stated.

On Wednesday, according to provisional figures, foreign investors purchased more Indian stocks than they sold, indicating that they do not anticipate a major escalation in the conflict between India and Pakistan.

As per the trader’s statement, these movements suggest that despite the tension, it is improbable for this scenario to escalate into a more extensive confrontation.

ASIA FX FALLS

Many Asian currencies declined relative to the U.S. dollar on Tuesday following the Federal Reserve’s decision not to alter the interest rates, which was as expected. On Wednesday, the dollar index saw a slight increase.

The central bank pointed out increasing threats of both elevated inflation and higher unemployment, further clouding the uncertainties surrounding the U.S. economic forecast.

US policy makers are still evaluating the consequences of President Donald Trump's tariff actions.

"Policy trade-offs may occur if both unemployment and inflation increase, which could place the Fed in a challenging position," according to a note from MUFG Bank.

The off-shore Chinese yuan fell below 7.2350 against the U.S. dollar.

KEY INDICATORS:

A one-month non-deliverable rupee forward rate stands at 84.90, whereas the onshore one-month forward premium is at 16.5 paise.

The dollar index stands at 99.66.

Brent crude futures increased by 0.4% to reach $61.3 per barrel.

The yield for a ten-year U.S. Treasury note stands at 4.28%.

According to NSDL figures, foreign investors purchased a total of $474.5 million in Indian stocks on May 6.

According to NSDL figures, foreign investors offloaded a net total of $84.9 million worth of Indian bonds on May 6.

(Reported by Nimesh Vora; Edited by Sonia Cheema)