Rupee Weakens as Strong Dollar Offsets Oil Drop

The Indian Rupee (INR) weakened against the US Dollar (USD) on Wednesday, despite oil prices dropping to their lowest level in two weeks. The USD/INR pair traded modestly higher, hovering near 95.72, as the Greenback benefited from persistent expectations that the Federal Reserve will extend its monetary tightening campaign through the rest of the year.

The US Dollar Index (DXY), which tracks the USD against six major currencies, rose to 100.73, its highest level in more than seven weeks. Market participants assign nearly a 90% probability that the Fed will implement at least one additional interest rate increase before year-end, according to the CME FedWatch tool.

Chicago Fed President Austan Goolsbee warned that supply shocks have become more frequent and persistent, which bolsters the argument for maintaining tighter policy for longer. Richmond Fed Bank President Thomas Barkin also signaled that additional rate moves will be needed to contain inflation, but avoided specific forward guidance on the eventual peak in policy rates.

Crude oil prices remain under pressure as investors react to signs of possible diplomatic progress between the United States (US) and Iran. The MCX Crude Oil contract expiring on October 19 trades 1.43% lower, around Rs. 8,520, marking its lowest level in two weeks.

India's flash HSBC Composite PMI reading for September indicates an acceleration in activity, with the Composite PMI climbing to 56.5 from 54.3. The private sector gained momentum, led by stronger manufacturing, and output and new domestic orders rose at faster rates.