Indian Rupee Slumps as Hawkish Fed Expectations Rise
The Indian Rupee (INR) has extended its decline against the US Dollar (USD) for the fourth day, reaching nearly 95.80 in early trading. The USD/INR pair's gain is attributed to the stronger-than-expected United States (US) Producer Price Index (PPI) data released on Thursday.
The US PPI report showed a 5.4% Year-on-Year (YoY) increase, surpassing estimates of 5.3%. The core PPI also rose at a faster pace, reaching 4.6% YoY, as expected compared to the previous reading of 4.3%. This data has boosted hawkish Federal Reserve (Fed) expectations, with the odds of an interest rate hike next week increasing to 72.4%, up from 61.2% before the release.
Theoretically, this rise in Fed expectations would lead to higher US Treasury Yields, diminishing the appeal of riskier assets. As a result, the 10-year US Treasury Yields hit record highs at 4.98%. Investors are now awaiting the Consumer Price Index (CPI) report for August, which will be published later today.
In India, the retail CPI data for August is scheduled for Monday and could be a key trigger for the INR. Economists at Societe Generale expect India's inflation to rise to around 4.8% YoY in August 2026, up from 4.4% in July, which would represent the third consecutive month of inflation above the RBI's 4.0% target.