USD/INR heads for 2nd week of gains on Fed rate hike prospects

Key points

USD/INR was heading for a second straight week of gains, as the Rupee was pressured by firmer dollar on expectations of further policy tightening by the Federal Reserve.

The US Dollar Index and US bond yields surged overnight supported by a higher revision in US GDP figure and a fall in jobless claims.

The yield on US 2-year government bonds rose to 4.90% overnight, or the highest level since March.

The final GDP growth estimate came in at 2.0% in the first quarter from 1.3% in the previous estimate.

“The scale of the revision higher (on U.S. GDP) will be taken by some to mean that the Fed still has a lot of work to do,” ING Bank analysts wrote in a client note, cited by Reuters.

Meanwhile, the number of Americans filing for unemployment benefits decreased to 239,000 last week from the revised up 265,000 in the prior week.

Markets are now pricing in an almost 85% chance of a 25 basis point interest rate increase at the Fed’s meeting in July, while the odds of another hike in September or November have also increased.

Investors are now looking to the May data on US core personal consumption expenditures, due out later on Friday, as it could affect Federal Reserve interest rate expectations.

As of 7:02 GMT on Friday USD/INR was inching down 0.03% to trade at 82.0270. The exotic Forex pair has found solid support within the area between 81.8500 and 82.0000 over the past twelve trading days.

USD/INR has edged up 0.10% so far this week.