Indian Rupee at 2-Week High against US Dollar

February 25, 2015 - Written by Frank Davies

STORY LINK Indian Rupee at 2-Week High against US Dollar

The Indian Rupee advanced to its best level in two-weeks against the US Dollar after Federal Reserve Chairperson Janet Yellen suggested that an US interest rate rise is not likely to occur for some time yet. Her comments offered support and improved sentiment towards emerging market assets such as the Indian currency.

In her semi-annual testimony to the US Congress, she said that the central bank would be patient on raising interest rates suggesting that no rate rise will occur for at least the next two policy meetings. When the Fed eventually changes its language, Yellen said that would not necessarily translate to an imminent shift in monetary policy. Rather, it will indicate that the Fed can start considering rate hikes on a "meeting-by-meeting basis." Yellen also delivered a rather dovish tone when describing wage and job growth in the world’s largest economy.

The Indian Rupee strengthened following Yellen’s testimony. Economists are forecasting that an upcoming federal budget will show that the Indian government intends to boost foreign investment.

‘The Rupee is reacting to Yellen’s comments, which implied that US rate increases are still probably some time away. There’s also some expectation of an investment friendly budget, which is aiding sentiment,’ said Navin Raghuvanshi, a currency trader at DCB Bank in Mumbai.

The budget is also expected to show increased investment in India’s decrepit infrastructure. The nation’s railways are set to receive a 25% increase in investment.

"The fall in diesel prices and a pick-up in freight earnings have given us a golden chance to raise investments," said one government official.

Falling oil prices have saved billions of dollars in subsidy spending across the economy, but Finance Minister Arun Jaitley is under pressure to prevent the fiscal deficit from busting a target of 3.6% of gross domestic product.

The Pound Sterling was also softer against the Indian Rupee but it did manage to claw back earlier losses after data showed that mortgage approvals increased for the first time since June last year. According to the British Bankers Association (BBA), the number of mortgages approved rose by 36,400 in January, and a figure that beat economist expectations for an increase of 36,200.

Comments made by Bank of England policy makers that suggested that interest rates could rise sooner than forecast also supported the Pound Sterling.

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