MUMBAI: The non-deliverable forwards indicated that the Indian rupee is unlikely to recover more on Thursday despite renewed hopes that the U.S. Federal Reserve may cut interest rates this quarter.

The 1-month non-deliverable forward indicated that the rupee will open at 86.40 to the U.S. dollar, compared with 86.3625 in the previous session.

The local currency had its best day in more than seven months on Wednesday and was among the top-performing Asian currencies, helped by December’s narrower-than-expected merchandise trade deficit.

The reason that the rupee will not likely rise on Thursday, “is probably the underlying (weak) outlook”, oil prices and the “always present” risk of U.S. tariffs, a currency trader at a bank said.

The U.S. Treasury yields fell, equities rallied, and the dollar dipped overnight after a widely measured gauge indicated that inflation is slowing again.

The U.S. core consumer price index (CPI) rose 0.2% month on month in December against a 0.3% increase expected by economists polled by Reuters.

“The details of the CPI report are benign and should give the Fed more confidence that the recent acceleration in inflation was just a bump,” Morgan Stanley said in a note.

The investment bank said the inflation report increased its willingness to position for the Fed March rate cut.

Interest rate futures were priced in a slightly higher probability of a rate cut at the March meeting. At the Jan. 28-29 meeting, the futures indicate that the U.S. central bank will make no changes to the policy rate.

Asian currencies rose on Thursday, receiving relief just days before U.S. President-elect Donald Trump’s inauguration. Worries over Trump’s trade policies and the jump in U.S. yields have undermined the appeal of Asian currencies.

Indian rupee gains marginally, forward premiums tick up as US bond yields drop

The uptick in Asia currencies “could just be a temporary reprieve” amid looming U.S. tariff hikes, MUFG Bank said.