Indian Rupee Under Pressure: Inflation Data Eases Interest Rate Hike Expectations, But High Oil Prices Remain a Concern

(1) On Thursday, despite both the US dollar and oil prices declining, the Indian Rupee still faced downward pressure against the US dollar. (2) The softness of the US dollar stems from eased market concerns over a near-term interest rate hike by the Federal Reserve, mainly due to expectations that the US July CPI growth will slow. Analysts at Brown Brothers Harriman Bank indicated that the latest inflation data has triggered a mild dovish shift in rate expectations, with the probability of a September rate hike shown by Federal Funds futures dropping from about 50% to 35%, consistent with market expectations. (3) However, as an economy heavily reliant on oil imports, the Indian Rupee typically performs weakly in a high oil price environment, and this structural constraint continues to exert pressure on the currency.