The USD/INR exchange rate has surged to a record high as the Indian rupee remained on edge. It jumped to a high of 86.65, up by 5% from its lowest level in 2023 as traders wait for the upcoming US Personal Consumption Expenditure (PCE) data. So, what next for the USD to INR exchange rate?
US PCE data ahead
The USD/INR continued its strong rally this week, as the Federal Reserve made its first interest rate decision of the year. As economists had widely expected, the Fed left interest rates unchanged at 4.50%.
The Fed left its guidance largely unchanged. It is now expected that inflation will remain higher for longer this year. As a result, officials anticipate that the country will require fewer interest rate cuts this year.
Most economists now expect the Fed to deliver its first interest rate cut in its July meeting. It will then hold them steady and deliver another cut in the fourth quarter.
The Fed is in no hurry to cut rates for two main reasons. First, it is concerned that US inflation remains significantly high. The headline Consumer Price Index (CPI) rose from 2.7% in November to 2.9% in December last year.
Economists expect the upcoming PCE report to show that prices continue rising. The headline PCE is expected to be 2.6%, up from 2.4% the previous month. Core PCE, excluding volatile food and energy prices, is expected to remain steady at 2.8%. All these numbers are higher than the Fed’s target of 2.0%.
The PCE is the most important inflation data that the Federal Reserve because it considers price changes in the rural and urban areas. This is unlike the Consumer Price Index data, which looks at the urban areas.
Reserve Bank of India rate cuts
The USD/INR pair has also surged as investors anticipate the Reserve Bank of India (RBI) cutting interest rates.
Odds of more rate cuts rose after the country published encouraging consumer inflation data this month. India’s Consumer Price Index (CPI) dropped to 5.22% in December from 5.48% a month earlier. It also dropped from 6.21% a month earlier.
Falling inflation and a slowing economy means that the RBI will have the justification to start cuttng rates.
The RBI has diverged from other central banks in the past 12 months. It has left interest rates unchanged, a move that triggered Modi to replace the central bank governor.
USD/INR technical analysis
USDINR chart by TradingView
The daily chart shows that the USD/INR exchange rate has surged to 86.68 as the Indian rupee crash accelerated. It has remained above all moving averages, a sign that bulls are in control.
The pair is hovering near the extreme overshoot point of the Murrey Math Lines indicator. Also, the Percentage Price Oscillator (PPO) has risen and is above the zero line. It has also formed a small double-top chart pattern.
Therefore, the pair will likely have a brief pullback, possibly to the ultimate resistance point at 85.93. This bullish view will become invalid if the exchange rate jumps above the double-top point at 86.70.
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