INR vs USD: Rupee rises for second day, hits two-week high on RBI intervention

The Indian rupee rose on Wednesday, hitting a nearly two-week high and extending its two-day rally spurred by central bank intervention, which analysts reckon may have forced the liquidation of bearish positions on the currency.

The rupee strengthened to 86.47 in early trading, its strongest level since late January, and was last quoted at 86.64, up around 0.2% on the day.

The currency posted its largest single-day gain in nearly two years on Tuesday, boosted by significant intervention by the Reserve Bank of India.

"The central bank's decisive hand is likely to stabilise the rupee in the near term, with the direction thereafter to be dictated by global dollar movements," DBS Bank said in a note.

The rupee's sharp recovery after a series of record lows in recent weeks has driven its 1-month realized volatility to around 4.4%, the highest level since April 2023.

DBS Bank forecasts the rupee will weaken to 88.8 by mid-2025, citing the dollar's safe-haven appeal due to U.S. President Trump's trade tariffs and the Federal Reserve's delay in rate cuts until the second half of the year.

Federal Reserve Chair Jerome Powell said on Tuesday that the U.S. central bank is in no hurry to make any further interest rate cuts.

The U.S. rate futures market on Wednesday has priced in about 35 basis points (bps) of easing this year, or one rate cut of 25 bps, with the first rate reduction now seen at the July or September.

Market attention will now shift to U.S. consumer inflation data, due later in the day, with economists polled by Reuters forecasting that the data will show core consumer prices rose by 0.3% month-on-month in January, up from 0.2% in the previous month.