USD/INR Under Pressure Ahead of Trump-Putin Summit and Fed Rate Cut Expectations

USD/INR Under Pressure Ahead of Trump-Putin Summit and Fed Rate Cut Expectations

The Indian Rupee (INR) continues to extend its gains, trading at around 87.55 against the US Dollar (USD) on Thursday. The USD/INR pair continues to face downward pressure as the US Dollar has been weighed down by increasing market expectations that the Federal Reserve (Fed) will resume its rate-cutting cycle during the September meeting.

Fed Rate Cut Expectations Weigh on USD

The US Dollar is under pressure, as market participants price in a nearly 100% probability of a 25 basis point (bps) rate cut by the Federal Reserve in September. According to the CME FedWatch Tool, the Fed is expected to bring borrowing costs to the range of 4.00-4.25%, further stimulating bets that the Fed will adopt a dovish stance in response to soft inflation data.

The US Consumer Price Index (CPI) report for July showed that inflation rose only by 0.2% on a month-to-month basis, meeting expectations and coming in softer than the 0.3% increase in June. This subdued inflation data has relieved fears about rising prices and provided more room for the Fed to implement a rate cut.

US Treasury Secretary's Forecast for Rate Cuts

Adding to the bearish sentiment surrounding the USD, US Treasury Secretary Scott Bessent forecasted that the Fed might opt for a 50 bps rate cut in September, further pressuring the Greenback. This forecast has further weakened the USD, as markets now anticipate more accommodative policy from the Fed in the coming months.

Market Divided on Future Rate Cuts

While there is broad consensus on a potential rate cut, market experts remain divided on the extent of the Fed's actions. Goldman Sachs analysts predict three more 25 bps cuts this year, while Commonwealth Bank of Australia cautioned that further data, including the upcoming CPI and payrolls reports, will be critical in determining whether the Fed will follow through on its anticipated cuts.

India-US Inflation Data and Trump-Putin Summit on the Horizon

As traders focus on US inflation data, India-US inflation figures for July will also be released shortly, which could influence the future trajectory of the INR. Additionally, investors are keeping a close eye on the Trump-Putin summit, which could affect broader market sentiment, adding to the geopolitical complexity of global financial markets.

Outlook for USD/INR

The Indian Rupee (INR) appears to have gained traction against the US Dollar (USD), benefiting from the combination of Fed rate cut expectations and a weaker USD. Market participants will likely continue to monitor the evolving US inflation situation and the outcome of the Trump-Putin summit in shaping the future direction of the USD/INR exchange rate.

With the USD on the defensive, the INR looks set to hold onto its recent strength, but any shifts in global risk sentiment or economic data may cause volatility in the coming weeks.