The Indian rupee maintained its trading within a narrow range near the level of 96 rupees to the US dollar, today, Wednesday, after the intervention of the Reserve Bank of India contributed to reducing the pressures resulting from the rise in oil prices and US Treasury bond yields.
The Indian currency stabilized at 95.93 rupees to the dollar, by 10:46 am local time, after moving within a range not exceeding 8 paise during the session, according to Reuters.
The rupee was expected to decline at the opening of trading with the rise of the dollar, ahead of the US Federal Reserve's decision on interest rates and the continuation of oil prices at high levels, but the intervention of the Indian Central Bank limited the potential losses.
During recent sessions, the Reserve Bank of India continued to sell the dollar through government banks to limit the decline of the rupee, in parallel with its use of dollar-rupee swap contracts to manage liquidity in the market.
Traders pointed out that the central bank's dollar selling operations were not aimed at defending a specific level of the exchange rate, which reflects its focus on slowing the pace of the rupee's decline, rather than stabilizing a specific price.
The Indian currency remains under pressure due to strong demand for the dollar from importers, in addition to rising US bond yields. Markets are also currently pricing in a probability of more than 90 percent that the Federal Reserve will raise interest rates during its meeting on Wednesday, compared to only about 60 percent a week ago, in light of escalating concerns related to inflation.
It is expected that investors will focus on the new update to the Fed members’ expectations chart (dot plot) and the economic expectations accompanying the meeting. Searching for indications about the possibility of implementing an additional increase in interest rates before the end of the year.
Oil remains the factor that exerts the most pressure on the rupee in the near term, as Brent crude oil hovers around $108 per barrel.
The rise in oil prices is also reflected in the US bond market, as the ten-year Treasury bond yield is close to the 5 percent level, which adds more pressure on the Indian currency.
In this context, CR Forex, based in Mumbai, suggested in a research note that the possibility of a decline in the rupee will be greater during the coming period, with the possibility of it moving towards a range between 96.30 and 96.50 rupees to the dollar, if current conditions continue unchanged.
Food price inflation in Britain is expected to rise to 3.9 percent this year and approach 7 percent in 2027, driven by Middle East unrest, rising input costs, and extreme weather events linked to the El Niño phenomenon, a leading grocery sector researcher said on Wednesday.
James Walton, chief economist at the Institute for Grocery Distribution (IGD), said that the current weakness in food price inflation will not last, explaining that buffer stocks and financial hedges have delayed, but not eliminated, pressures resulting from energy market turmoil and extreme weather events, according to Reuters.
The institute expects average food price inflation in Britain to range between 2.9 and 3.9 percent during 2026, before rising to between 5.6 and 6.6 percent during 2027, then stabilizing between 5.3 and 6.3 percent during 2028.
These expectations come at a time when the Bank of England is monitoring the repercussions of rising food prices on broader inflation, as it fears that rising food prices will raise inflation expectations, which could make price pressures more entrenched in the economy.
Weather conditions constitute one of the most prominent sources of risk to food supplies. The institute said that evidence indicates the occurrence of an exceptionally strong El Niño phenomenon, with its effects on crop production, quality and availability expected to continue until 2027 and beyond. Fruits and vegetables are expected to contribute most to the rise in food price inflation. Due to its short production cycles and high sensitivity to weather conditions.
In the face of these risks, the Grocery Distribution Institute said that increasing production capacity, especially within Britain, would enhance the food system’s ability to withstand disruptions and improve security of supply. Overall, his forecast is in line with estimates published earlier this month by the British Food and Drink Federation.
Despite these expectations, data from the National Bureau of Statistics showed that food and beverage price inflation fell last July to 1.3 percent, its lowest level since August 2024. August data is scheduled to be released on Wednesday.
On the other hand, a separate measure of grocery prices showed that pressures began to trend upward again, as grocery price inflation in Britain rose to 2.3 percent during the four weeks ending September 6, according to data from the market research company World Panel, affiliated with Numerator, issued on Tuesday.
Benchmark German bond yields for the euro zone fell from their highest levels in 17 years, on Wednesday, as traders held off, in light of the decline in energy prices, after they increased their bets on the European Central Bank raising interest rates due to inflation fears, and briefly placed a possibility of the deposit interest rate above 3.5 percent, earlier this week.
Markets are also awaiting the US Federal Reserve's decision on monetary policy, later today, while they are strongly betting that policymakers will raise interest rates by a quarter of a percentage point to a range between 3.75 and 4.00 percent, indicating further monetary tightening in the future, according to Reuters.
The 10-year German bond yield fell by 0.5 basis points to 3.53 percent, after reaching 3.5723 percent on Tuesday, its highest level since June 2009.
Energy prices fell, as Brent crude futures fell after a two-day rise that followed an unexpected and significant rise in US crude inventories, while gas prices fell by about 3 percent.
Market prices indicated that the deposit interest rate at the European Central Bank is expected to reach 2.86 percent by next December, compared to the current level of 2.50 percent. The markets also expect the interest rate to reach 3.37 percent, by November 2027, with a third increase fully calculated, and indicating a probability of approximately 50 percent to implement a fourth increase.
The European Central Bank raised interest rates last week for the second time this year. In an attempt to contain rising energy-induced inflation, he warned that price pressures may persist for a long time, raising bets on further monetary tightening.
On the other hand, some analysts believed that expectations of a rate cut went too far, noting that rising energy prices would likely put pressure on growth and contribute to calming inflation.
The two-year German bond yield, the most sensitive to interest rate movements, settled at 3.23 percent, after reaching 3.3123 percent on Monday, its highest level since September 2023.
The 10-year French government bond yield fell by one basis point to 4.49 percent, after recording 4.5531 percent on Tuesday, the highest level since September 2008.
The difference between French bond yields and German bonds, which are considered a safe haven, reached 96 basis points, after reaching 98.15 basis points on Tuesday, which is the widest difference since July 2012.
In contrast, the Italian 10-year government bond yield rose by 2.5 basis points to 4.21 percent, while the spread over German bond yields reached 87 basis points.
