CURRENCY OVERVIEW

The Indian rupee has a muted start on Wednesday and traders reckon that directional moves will be contingent on oil prices amid hopes of a diplomatic solution to the US-Iran ‌war through talks at the UN. Weakness in capital flows and stress on account of ?an elevated energy bill has translated to pressure on the rupee, partially absorbed by frequent central bank interventions, that have kept the currency's losses in check. Traders reckon that rhythm ?is likely to persist in the near-term, especially after the central bank's bountiful haul of capital inflows under one-off policy measures to attract foreign currency boosted India's FX reserves to a record high. The dollar steadied near its strongest level in two months on Wednesday on prospects of interest rate hikes in the near term, while easing oil prices on hopes for a diplomatic breakthrough to end the Middle East war kept investors on edge. The euro was at $1.1446 in early trading, loitering near its weakest level since late July. Sterling bought $1.3337. The dollar index , which measures the US currency against six rivals, was at 100.56. The recent barrage of rate hikes and hawkish rhetoric from major central banks has taken centre stage in currency markets as the US-Israeli conflict with Iran drives oil prices higher and fans inflation worries. Oil markets remain in the spotlight with Brent crude futures at $99.22 per barrel on hopes that diplomacy at the UN General Assembly could pave the way for a resolution to the Middle East war. Brent has risen 37% since the conflict erupted at the end of February. The Japanese yen was at 157.55 ?per US dollar as traders remain wary of the threat of intervention as markets judged the Bank of Japan's rate hike to a 31-year high last week as insufficiently hawkish. Two dissenting votes and the absence of a clear hawkish signal were enough to fuel doubts over how quickly the BOJ ?will tighten policy, particularly after the Fed raised rates last week and flagged further hikes ahead. Japanese markets are closed for a holiday and the low liquidity period is seen by analysts as an optimal time for authorities to intervene if needed. In commodity markets, gold eased 0.3% to $4,341 an ounce , while copper neared record highs having climbed 18% so far this year. The dip in oil helped Treasury futures nudge higher, keeping 10-year yields below the 5.0% pain barrier. However, two-year yields had again hit their highest since mid-2024 at 4.7879% as investors ?priced in the risk of more tightening from the Federal Reserve. Futures markets imply a 54% chance the Fed will hike again in October and have 33 basis points of tightening priced in by year end. The ?prospect of higher rates helped the dollar eke out multi-week highs on the euro, sterling and Canadian dollar, improving its technical background. The euro was left pinned at $1.1440 and near a two-month low. Analysts noted a call from Trump to ban U.S diesel exports, was potentially bad news for European inflation since the zone relied ?heavily on U.S. shipments of the fuel. Europe already faces a shortage of natural gas that could push energy prices higher into the winter. The dollar was a shade firmer on the yen at 157.60 , with speculators wary of drawing more Japanese intervention on any push past 160.00.