• USDINR has extended its gains to near 81.60 ahead of US mid-elections outcome.
• Lower consumer spending and Fed’s bigger rate hike have trimmed consensus for the US CPI.
• The RBI may opt for a 35 bps rate hike in its December monetary policy meeting.

The USDINR pair is witnessing a significant responsive buying action after dropping to near 81.20 in the Tokyo session. The asset has extended its gains above 81.43 and has printed a day’s high of around 81.60. Escalating uncertainty ahead of the US mid-term elections outcome and the release of the US Consumer Price Index (CPI) data has kept the risk-perceived currencies on the tenterhooks.

The US dollar index (DXY) has recovered after printing a day low at 109.47. For the time being, the DXY has defended its weekly low around 109.35. The risk profile is displaying mixed responses as S&P500 futures are trading with marginal losses after a bullish Tuesday.

Meanwhile, obscurity over the extent of the rate hike by the Federal Reserve (Fed) in its December monetary policy meeting and anxiety ahead of the US inflation data has capped the alpha generated by the US government bonds. The 10-year US Treasury yields are displaying a subdued performance at around 4.14%.

Consensus is favoring a marginal decline in US inflation data as the Fed is continuously hiking interest rates and consumer spending has been dented amid subdued average hourly earnings.

On the Indian rupee front, the consecutive release of retail inflation above the targeted range has forced think tanks to lift consensus for the extent of the rate hike by the Reserve Bank of India (RBI). Economists at Goldman Sachs now expect RBI to raise interest rates by 50 bps, instead of 35 bps, at its MPC meeting next month. Also, RBI Governor Shaktikanta Das may elevate interest rates further by 35 bps in February 2023 vs. the prior projections of 25 bps.