US Inflation Keeps Fed Rate Hike Bets Alive, Pressuring Indian Markets
US inflation data for August was released, showing that prices rose 0.4% from July and 3.4% year-over-year, keeping pressure on the Federal Reserve to raise interest rates at its upcoming meeting.
The Consumer Price Index (CPI) remained above the Fed's 2% target, with annual inflation unchanged from July. The August reading was in line with market expectations, but still leaves inflation well above the central bank's target.
Higher US yields could put pressure on Indian markets, bonds, and the rupee as global investors reassess the relative attractiveness of US assets. A higher-for-longer US rate environment could also narrow the yield advantage offered by Indian government securities to foreign portfolio investors (FPIs), reducing their attractiveness and potentially triggering FPI outflows from the debt market.
For gold investors, a correction caused by higher US yields may not necessarily change the long-term investment case. Fund manager Satish Dondapati recommends keeping around 10-15% of a portfolio in gold and adding gradually rather than investing a large amount at one go.