(Reuters) - The Indian rupee strengthened sharply on Monday, as the dollar index plunged after economic data released last week fanned hopes of the Federal Reserve slowing the pace of its interest rate hikes.
The rupee was trading around a one-month high of 82.30 per dollar by 10:15 a.m. IST, as compared to its previous close of 82.72.
"A break of 82.40-level was critical and if USD/INR stays below this, the pair could drop to 81.80-81.50 in the coming days", said Sajal Gupta, head forex and rates at Edelweiss Financial Securities.
Asian currencies and stocks got a boost as the dollar index and Treasury yields extended Friday's decline after data showed wage growth in the United States slowed month-over-month while services activity contracted for the first time in over 2-1/2 years.
At the same time, a jump in the workforce suggested the U.S. job market was starting to move the way the Fed had hoped.
Markets have reduced their expectations of a large rate increase next month, with futures implying a near 75% chance of a 25 basis point hike.
Investors will now focus on the consumer price index data due on Thursday during U.S. hours.
Inflation data in India is also due on Thursday and is expected to cool for the month of December, but core inflation could stay elevated, analysts at Standard Chartered said.
Meanwhile, government forecasts released last Friday showed economic growth was expected to slow in the financial year ending March, as pandemic-related distortions ease and pent-up demand for goods levels out going into 2023.