• USD/INR is aiming to shift its business above confidently 81.60 amid the souring market mood.
• The Fed is expected to further decelerate the pace of policy tightening further.
• Indian Rupee might display sheer volatility on Budget Day ahead.

The USD/INR pair is generating gains after a recovery move from 81.40 and is looking to shift its auction profile above the critical resistance of 81.60 in the Asian session. The asset is picked strength amid a firmer recovery in the US Dollar Index (DXY) after a corrective move below 101.80. The appeal for safe-haven assets is escalating as investors have underpinned the risk-aversion theme ahead of the monetary policy announcement by the Federal Reserve (Fed).

S&P500 futures have surrendered gains added in early Asia and turned into a negative trajectory now. The 500-US stock basket futures settled Monday’s trading session with significant losses and a continuation of the downside journey has weakened the risk appetite of the market participants. Due to a loss in the risk-taking ability of the market participants, the Indian Rupee is facing the heat.

The demand for US government bonds is increased marginally as the Fed is highly expected to slow down the pace of policy tightening again. It is worth mentioning that after hiking interest rates by 75 basis points (bps), straight for four times, Fed chair Jerome Powell trimmed the scale of the interest rate hike to 50 bps in its December monetary policy meeting. And now, after observing a decline in consumer spending and Producer Price Index (PPI) in January, Fed policymakers are favoring further deceleration in the policy tightening pace to 25 bps.

On the Indian Rupee front, investors are awaiting the announcement of the Financial Budget 2023-2024, which will provide a detailed explanation of the expenditure to be undertaken and revenue to recover through taxes by the Indian government. A significant injection of liquidity by the government and a lower Fiscal Deficit target could impact the Indian Rupee further.