Rupee watchful as dollar inches toward 3-month peak on abating Fed cut bets

Rupee in focus: The Rupee is poised to maintain a cautious stance against the dollar on Tuesday as the dollar index edges higher, propelled by encouraging US services data and a subsequent retreat in expectations for Federal Reserve rate cuts.

Forecasts from non-deliverable forwards suggest the Rupee will likely open flat to slightly lower compared to its previous session close of 83.0550 against the US dollar.

Market sentiment favours the dollar's recent uptrend, with the USD/INR pair expected to maintain levels above 83, according to a foreign exchange trader at a bank. However, projections do not foresee a major move beyond 83.20, with the overall outlook for the Rupee remaining positive.

The dollar index reached a high of 104.60 during the New York trading session on Monday, marking its strongest level since November 14. 

Meanwhile, US 2-year bond yields surged to nearly 4.50 per cent, while US equities experienced a decline.

January's US service sector expansion surpassed expectations, driving demand for the dollar. The positive data, combined with robust US job figures, prompted investors to reconsider their expectations for rate cuts.

Minneapolis Federal Reserve President Neel Kashkari stressed in an essay published on Monday that the resilient economy and the potential for a higher neutral interest rate could delay the Fed's decision to reduce interest rates.

The probability of a March rate cut has dwindled to approximately 15 per cent, and expectations for a reduction at the May meeting have also eased. Looking ahead, analysts suggest the likelihood of a May rate cut remains uncertain.

Asian currencies, following Monday's sell-off, mostly traded within a narrow range, awaiting further developments in the global market landscape.

(With Reuters Inputs)