Rupee to weaken after dollar jumps on upbeat US data, dovish ECB

The Indian rupee is poised to decline on Friday after a better-than-expected reading on U.S. gross domestic product and a slump in the euro prompted the biggest rally on the dollar index in more than four months.

Non-deliverable forwards indicate rupee will open at around 82.25 to the U.S. dollar compared with 81.93 on Thursday.

Offshore is indicating "a pretty decent sized" move at open considering how muted the volatility on the rupee has been over the last several weeks, a currency trader at a Mumbai-based bank said.

"You would have to think that the opening move higher (USD/INR) should run into good offers."

Asian currencies were lower, pressured by the biggest advance dollar index since mid-March. The dollar index climbed 0.6 per cent on Thursday, helped the euro's plunge following the European Central Bank outcome.

The ECB raised rates by 25 basis points, along expected lines, while leaving its options open for the September meeting.

"While the policy announcement... left the door wide open for another rate hike in September, ECB President Christine Lagarde stressed during her press conference that anything was possible, including a pause," ING Bank said in a note.

Meanwhile, the advance estimate showed U.S. GDP increased at a 2.4 per cent annualized rate last quarter, better than the 1.8 per cent rate expected by economists polled by Reuters. And, U.S. initial claims dropped to the lowest level since February, signalling that the labor market is holding up.

The data prompted doubts whether investors were too optimistic in pricing rate cuts by the U.S. Federal Reserve from March next year.

The focus now turns to the Bank of Japan policy outcome. The Japanese currency rose on Thursday on speculation that central bank could tweak its yield curve control policy later in the day.

KEY INDICATORS:

One-month non-deliverable rupee forward at 82.30; onshore one-month forward premium at 7 paisa

USD/INR NSE August futures settled at 82.0075 on Thursday

USD/INR August forward premium at 7 paisa

Dollar index at 101.70

Brent crude futures down 0.7% at $83.7 per barrel

Ten-year U.S. note yield at 3.98%

As per NSDL data, foreign investors bought a net $137.9mln worth of Indian shares on Jul. 26

NSDL data shows foreign investors bought a net $2.6mln worth of Indian bonds on Jul. 26