• The Indian rupee is struggling to gain momentum on the modestly stronger USD.
• The Fed’s hawkish stance and cautious mood negatively impact the INR.
• The most vital data on Friday will be Indian GDP data and US PCE data.

The Indian rupee (INR) weakens on Friday amid a moderate rebound in the US dollar (USD). The Federal Reserve’s (Fed) mantra of higher interest rates in the US for longer is strengthening the dollar and putting pressure on asset sales in emerging Asian markets, including the INR. Moreover, cautious waiting for key US inflation data may support the dollar for now.

On the other hand, the fall in crude oil prices may limit the negative impact of INR as India is the third largest consumer of oil. Economists believe that India’s economic momentum will continue in the January-March quarter (Q4FY24), with GDP growth at 6.8%. A stronger than expected reading could strengthen the Indian rupee and impact the pair in the near future. In the US, the Core Price Index for Personal Consumption Expenditures (Core PCE) will be published for April.

Daily Digest Market Changes: Indian Rupee Remains Weak Despite India’s Solid Economic Prospects

• S&P Global analysts expect India’s solid economic fundamentals to strengthen its growth momentum over the next two to three years.
• The Indian rupee may stand out among emerging market currencies due to its high carry-to-volatility ratio, Goldman Sachs analysts say.
• U.S. gross domestic product (GDP) grew at an annual rate of 1.3% in the first quarter, down from the 1.6% growth recorded in the first estimates, and was in line with market estimates.
• Initial claims for state unemployment benefits increased by 219,000. in the week ending May 25, above initial estimates of 218,000. and above the previous weekly boost of 216,000. (corrected from 215 thousand).
• Chicago Fed President Austan Goolsbee said on Thursday that inflation can continue to fall without rising unemployment, adding that the labor market remains the strongest part of the economy, according to Reuters.
• Atlanta Fed President Raphael Bostic said that inflation will decline slowly and it is unlikely that the Fed will decide to cut interest rates in July.
• New York Fed President John Williams said there was “sufficient evidence” that monetary policy was tight and helping to bring inflation to the 2% target. Williams added that he does not feel an urgent need to cut interest rates.

Technical analysis: USD/INR is gaining value in the long run

The Indian rupee is weaker during the day. The USD/INR pair is returning to a bullish stance, holding above the key 100-day exponential moving average (EMA) on the daily chart. Further consolidation is not out of the question as the 14-day Relative Strength Index (RSI) is hovering around the 50 midline.

The USD/INR rate has been in a downtrend channel since mid-April. The first upward barrier will appear near the upper border of the channel at 83.40. A bullish breakout will pave the way for the May 13 high of 83.54, followed by the April 17 high of 83.72 and then the psychological high of 84.00.

On the other hand, the initial support level for USD/INR is located near the 100-day EMA around 83.20. A potential target to watch is an 83.00 round score. A break below the mentioned level will result in a drop to the January 15 low of 82.78 and ultimately to the March 11 low of 82.65.