• USD/INR is expected to remain weaker on positive market sentiment.
• A 75 bps rate hike by the Fed has activated the ‘Buy on Rumor and Sell on News’ indicator for the DXY.
• Weak oil prices are expected to benefit the Indian rupee.

The USD/INR pair is displaying a subdued performance at the open amid an overnight rate hike by the Federal Reserve (Fed). The Fed elevated its interest rates by 75 basis points (bps), which cheered the market mood and sent the US dollar index (DXY) into a negative trajectory.

This week the pair has remained sideways in a range of 77.92-78.30 as investors were awaiting a rate hike announcement by the Fed and the constant outflow of Foreign Institutional Investors (FIIs)’s funds from the Indian bourses. The Fed went beyond the consensus of 50 bps and elevated its interest rates to 1.50-1.75% considering the mounting price pressures. Thanks to the solid growth prospects and a tight labor market which supports Powell and Co. to dictate a bumper rate hike.

The US dollar index (DXY) slipped heavily on activation of the ‘Buy on Rumor and Sell on News’ indicator. The DXY is establishing below the psychological support of 105.00 on the announcement of a 75 bps rate hike for the first time since 1994. A slippage in the safe-haven’s appeal has benefitted the risk-sensitive currencies.

Meanwhile, a slippage in oil prices is expected to support the Indian rupee further. A higher interest rate announcement by the Fed has trimmed the growth forecasts significantly. As per Powell’s press conference after the monetary policy announcement, the Fed would be happy with a 4.1% jobless rate too if inflation gets cool down. An increase in the jobless rate will shrink the aggregate demand and henceforth the demand for oil.