• USD/INR is heading towards 83.00 despite a steep fall in the DXY.
• Goldman Sachs sees the terminal rate at 5% beyond the Fed’s projected rate of 4.8%.
• RBI policymakers will also discuss the inflation report for the first time in the monetary policy framework.

The USD/INR pair is hovering around 82.80 after a sheer upside and is aiming to reclaim the round-level resistance of 83.00. The asset is scaling higher despite a steep fall in the US dollar index (DXY) as risk-off faded.

A rebound in the positive market sentiment has supported S&P500 futures. The 500-stock basket has managed to recover half of its Monday gains. Alpha generated by US government bonds has trimmed despite rising bets for a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed). The 10-year US Treasury yields have dropped to 4.03%.

Apart from the Fed’s interest rate hike, guidance on policy tightening will also be crucial. A rate hike by 75 bps will push interest rates to 3.75-4%, which will inch current interest rates near the terminal rate projected near 4.80%.

A report from Goldman Sachs cites that the US central bank could go beyond its desired terminal rate of 4.75% to 5%. The road to a 5% terminal rate will go through the phases of 75 basis points (bps) this week, 50 bps in December, and 25 bps in February and March, the report added.

On the Indian rupee front, investors are awaiting the interest rate decision by the Reserve Bank of India (RBI), which is due on Thursday. The RBI policy will be keenly watched as the inflation report will also be discussed for the first time since the implementation of the monetary policy framework in 2016.

It is worth noting that RBI Governor Shaktikanta Das has failed in keeping the inflation rate near the desired rate of 4% consecutively for three quarters.