Rupee may inch up as upbeat risk appetite, Fed outlook undermine dollar

The Indian rupee is likely to open marginally higher on Wednesday, boosted by the dollar's decline against most currencies on the Federal Reserve's interest rate outlook and positive risk appetite.

Non-deliverable forwards indicate the rupee will open at 83.14-83.16 to the US dollar, compared with 83.18 in the previous session.

"The excitement of the (USD/INR) drop below 83 has all but faded and I expect a very quiet session," a FX trader at a bank said.

"It seems to me that the risk is on the upside (for USD/INR), but only very marginally."

The dollar index dropped in the European and US trading sessions on Tuesday, pressured by expectations of sizeable US rate cuts next year.

Despite comments from a number of Fed officials that indicated that investors have priced in too dovish an outcome for next year, expectations have barely budged.

Fed fund futures indicate investors still expect a total of nearly 150 basis points of rate cuts in 2024 and the odds of a cut as early as March are near 70%.

More Fed speakers are lined up to speak on Wednesday and their comments will draw additional interest in wake of what other policymakers have said.

The positive risk sentiment was an additional problem for the safe-haven dollar. The S&P 500 Index rose 0.6% overnight, nearing its all-time high. Asian shares advanced.

The Bank of Japan on Tuesday disappointed hawkish expectations, helping riskier assets and weighing on the yen. The Japanese currency was down to 144 to the dollar.

"The BoJ kept its dovish guidance unchanged ("take additional monetary easing steps without hesitation if needed") which forced markets to abandon speculation of a rate hike in January," ING Bank said in a note.