The Indian rupee strengthened for the third consecutive day, closing at 88.0525 per dollar compared to the previous close of 88.21. The 16 paise gain was driven by broader dollar weakness ahead of the US Federal Reserve's two-day policy meeting, with markets expecting a 25-basis point rate cut.

Dollar Weakness and Market Expectations

The dollar index fell below 97 during Asian trade, reaching multi-month lows against major currencies. This weakness in the US currency has contributed to the rupee's strengthening. Investors are closely watching the Federal Reserve's policy meeting, anticipating a potential rate cut that could further impact currency markets.

Domestic and Regional Factors

Positive local equity markets and gains in Asian currencies supported the rupee's performance. The ongoing US-India trade talks have also raised hopes for progress on resolving tariff disputes, potentially benefiting the rupee.

Recent Rupee Performance

Despite recent gains, the rupee hit a record low of 88.4425 per dollar recently and continues to underperform regional peers due to ongoing US trade tensions. Currency dealers are monitoring the offshore Chinese yuan, which has been strengthening as Beijing allows more market influence on its value.

Trade Talks and Future Outlook

The commencement of US-India trade talks in New Delhi is a focal point for investors. American negotiator Brendan Lynch is scheduled to meet with Indian officials for day-long discussions on the bilateral trade deal. These talks mark the sixth round of negotiations between the two nations, with previous discussions having been postponed following the imposition of 50% US tariffs on Indian goods.

Market Indicators

• The dollar index was trading at 97.22, down 0.08%.
• Brent crude oil prices saw a modest increase of 0.25%, reaching $67.61 per barrel.

Domestic Equity Markets

Indian stock markets showed positive momentum:

Foreign Institutional Investors

Foreign Institutional Investors (FIIs) continued their selling streak, offloading equities worth ₹1,268.59 crore.

As the US-India trade negotiations unfold, market participants will be closely monitoring any developments that could influence the rupee's trajectory and broader economic relations between the two countries.

The Indian rupee plunged to a historic low against the U.S. dollar, reflecting ongoing market pressures and anticipation of the Federal Reserve's upcoming decision on interest rates. This development underscores the challenges facing India's currency amid global economic uncertainties.

Rupee's Record Low and Recovery

The Indian rupee touched an unprecedented low of 88.45 against the U.S. dollar, driven by persistent dollar demand and concerns over U.S. tariffs. However, the currency showed some resilience, recovering slightly to 88.28 in subsequent trading.

Federal Reserve Meeting in Focus

Market participants are keenly awaiting the Federal Reserve's meeting, where a 25-basis-point rate cut is widely anticipated. This expected move by the U.S. central bank is influencing currency markets globally, including the rupee's performance.

Analyst Expectations

Despite the possibility of a weaker dollar following the potential rate cut, analysts remain cautious about the rupee's prospects:

• The Indian currency is expected to underperform its Asian counterparts.
• Gains for the rupee are likely to be limited in the near term.

Bond Market Developments

India's bond market is also reflecting the current economic climate:

• The 10-year benchmark bond yield settled at 6.49%.
• Traders anticipate the yield to fluctuate within a range of 6.40% to 6.52%.

Government Fiscal Stance

Recent statements from the Indian government have had a positive impact on the bond market:

• Finance Minister Nirmala Sitharaman has confirmed that the government will meet its budget deficit target.
• No changes to the borrowing calendar have been announced.

These assurances have contributed to easing bond yields. However, analysts note that without additional support from the central bank, such as bond purchases or dovish guidance, the potential for a significant rally in bonds remains constrained.

As global economic factors continue to influence currency and bond markets, investors and policymakers alike will be closely monitoring developments in both domestic and international financial landscapes.