The Indian rupee edged lower against the U.S. dollar as strong demand for the greenback and weakness in regional currencies weighed on sentiment. However, traders believe the Reserve Bank of India (RBI) may have stepped in to curb further losses, with state-run banks seen selling dollars.

As of 10:50 a.m. IST, the rupee was trading at 86.9550 per dollar, slightly weaker than its previous close of 86.8775, according to Reuters. A trader at a foreign bank noted that the daily reference rate carried a premium of 0.30/0.50 paisa, reflecting strong dollar demand.

State-run banks were reportedly selling dollars around the 86.94-86.95 levels, suggesting possible RBI intervention to stabilize the currency.

Broader Market Trends

Across Asia, currencies weakened between 0.1% and 0.4% as the U.S. dollar index climbed 0.3% to 107, recovering from a recent two-month low. U.S. bond yields also moved higher, with the 10-year Treasury yield rising four basis points to 4.51%. Meanwhile, the 1-year U.S. Treasury yield ticked up, impacting dollar-rupee forward premiums.

The 1-year dollar-rupee implied yield dropped by two basis points to 2.11%, its lowest in over two months. Traders expect the Federal Reserve to hold rates steady, while speculation about a possible RBI rate cut in April is growing, adding further pressure on forward rates.

Fed’s Cautious Stance

Federal Reserve officials, including Governor Michelle Bowman, have stressed the need for more signs of sustained inflation decline before considering rate cuts. This cautious approach is likely to shape market sentiment ahead of the RBI’s April meeting, with swap dealers watching for the 1-year yield to test a support level of 1.95%.