Barclays sees dollar strength persisting into early 2024, anticipates rupee weakness ahead

The currency markets are currently undergoing significant changes, particularly with the US dollar's impact on emerging market currencies. Mitul Kotecha, Head of FX and EM Macro Strategy Asia at Barclays, in an exclusive interview with CNBC-TV18, provided his insights on this dynamic landscape.

Kotecha anticipates that the dollar will maintain its strength in the coming months, particularly into the first quarter. However, he expects a moderation in the dollar's performance later next year. This shift could pressure emerging markets and Asian currencies, including the Indian rupee, which is currently rangebound but may weaken in the next year, potentially reaching around 83.8 against the dollar.

"Our view is that ultimately the rupee could see a weaker footing as we go into the next year potentially around 83.8 before we see some downward move in dollar rupee," he explained.

The rupee demonstrated resilience in morning trade on Wednesday, November 15, appreciating 32 paise to 83.01 against the US dollar. This rise followed the US dollar's retreat from its high levels after US inflation data came in lower than expected. Forex traders noted that the rupee's bullish start was due to the weakening of the US dollar post the inflation data, reaching its highest level in nearly two months.

On November 13, the rupee touched an all-time low of 83.33 against the dollar.

Amit Pabari, MD of CR Forex Advisors, observed that the rupee is currently trading at nearly a two-month high around 83.00 levels. He cautioned that a breach below 82.95 could lead to further downside, with levels of 82.80 and 82.50 becoming crucial in the sessions to come.

In the broader economic context, the dollar index showed a marginal uptick of 0.02% to 104.07, following a recent high of 105.77 on Monday (November 13).

As global economic dynamics continue to evolve, the currency markets remain sensitive to key indicators, with the dollar's strength and the rupee's performance drawing attention from investors and analysts alike. The coming weeks are likely to witness fluctuations in these currencies, influenced by factors such as inflation trends, oil prices, and broader market sentiments.

Samiran Chakraborty, Chief India Economist at Citibank, indicated that inflation in India could hover within the range of 5.6-5.9%.

“There is not really a big respite over the next two months. We think that the next two prints could be in the range of 5.6% to 5.9% -- pretty close to the 6% mark and that is why it is difficult for the Reserve Bank of India (RBI) to immediately move into some sort of an easing mindset -- probably wait for a more sustained drop towards 4% mark, observe that and then only consider some easing which we think is not before the middle of next year,” he said.

As inflation remains a critical factor influencing economic decisions, the forecasted range offers a glimpse into the challenges and opportunities that may shape India's economic landscape in the coming months.