MUMBAI: The Indian rupee is likely to open marginally higher on Wednesday as the dollar retreats in the lead up to U.S. inflation data that will give cues on the direction of U.S. interest rates.

The 1-month non-deliverable forward indicated that the rupee will open at 86.58-86.60 to the U.S. dollar, compared with 86.63 in the previous session, when it hit an all-time low of 86.6475.

The currency has declined 1.2% this month.

The rupee’s fall from 84 to the current level has happened “without any form of correction” and “there is little doubt” it has been very fast, a currency trader at a bank said.

Indian rupee unlikely to find support in Asia FX’s slight recovery

“Yes, India’s fundamentals and the (U.S. President-elect Donald) Trump’s (tariffs threat) situation warrant a weaker rupee. However, I have a sense that we are going to see a sizeable correction very shortly.”

The dollar index was at 109.24, off nearly 1% from the multi-year high hit two days back.

Oil prices, like the dollar, pulled back with Brent crude back below $80 a barrel.

The U.S. headline consumer price index (CPI) is likely to have risen by 0.3% month-on-month in December, and the core gauge by 0.2%, per a poll conducted by Reuters. Headline CPI likely rose 3% year-on-year.

The data comes days after a blowout jobs report prompted traders to further rein in their expectations of rate cuts by the Federal Reserve. Rate futures indicate only one rate cut this year, half the number the Fed projected last month.

The sticky U.S. inflation alongside worries over Trump’s planned trade and fiscal policies has prompted investors to reassess the rate path.

“This is not the type of report that the Fed thought they would see at end 2024,” ING Bank said in a note.