Rupee rises after benign U.S. inflation print, forward premiums jump

FILE PHOTO: Illustration photo of an India Rupee note

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee rose against the dollar on Friday following another fall in the U.S. inflation rate, while forward premiums rose to their highest level in two months.

The rupee was trading at 81.4150 to the U.S. dollar by 10:50 a.m. IST, compared with 81.55 in the previous session. The local currency had opened at 81.26, its highest level in over a month.

It is not a surprise that USD/INR has recovered after the open, a forex salesperson at a private sector bank said. The pair has witnessed a decent dip for importers to jump in, the trader added.

A trader at the same bank pointed out that public sector banks bought dollars at the open, but it was difficult to confirm whether it was for their clients or on behalf of the Reserve Bank of India.

The rupee and other Asian currencies were helped by the dollar's slump against its major peers following the U.S. inflation data. U.S consumer prices on a month-on-month basis fell for the first time in more than 2-1/2 years in December, providing good news on inflation

The data instilled more confidence among traders that the Fed is likely to downshift to a 25-basis point hike at the Jan 31-Feb 1 meeting. Fed futures now show just a 6% chance of a bigger rate hike, according to the CME FedWatch Tool.

"This month's report provides confirmation that the downshift in inflation pressures is becoming entrenched, setting the stage for another reduction in the pace of rate hikes," Morgan Stanley said in a note.

Tracking the fall in Treasury yields following the inflation data, rupee forward premiums rose. The 1-year implied yield rose to 2.26%, the highest since Nov.

(Reporting by Nimesh Vora; Editing by Janane Venkatraman)