MUMBAI, Aug 28 (Reuters) - The Indian rupee is likely to inch up this week following Federal Reserve Chair Jerome Powell's comments at Jackson Hole. Indian bond yields are likely to be flat.
The rupee last week ended at 82.6475 to the U.S. dollar and is expected to be in the 82.40-82.80 range this week with an upside bias.
"With Powell risk out of the way, the rupee is likely to follow its near-term trend, which we think is now higher," a forex trader at a Mumbai-based bank said.
It "is now highly unlikely" that the rupee will drop below 82.80-82.90, he said.
Powell on Friday, in his speech at Jackson Hole, indicated that more rate hikes were possible, but noted that the Fed was in a position to "proceed carefully" at upcoming meetings.
Powell's remarks on proceeding carefully could mean that the Fed does not intend to hike at the September meeting, Goldman Sachs said.
"We continue to expect that the FOMC (Federal Open Market Committee) will ultimately decide that further policy tightening is unnecessary, making the hike at the July FOMC meeting the last of the cycle," Goldman Sachs added.
Focus this week will be on key U.S. data, with core PCE inflation, non-farm payrolls and ISM manufacturing all due.
Meanwhile, the benchmark 7.26% 2033 bond yield ended at 7.2035% on Friday. It fell one basis point (bps) last week after rising an aggregate of 14 bps in the prior four weeks.
Traders expect the benchmark bond yield to be in the 7.18%-7.26% zone this week.
U.S. yields rose marginally after the commentary from Powell, as even though traders do not expect a rate hike, bets that rates would remain elevated gained strength, making the data due this week more crucial.
Meanwhile, traders will stay focused on the evolving liquidity situation and developments in local inflation for more cues.
Retail inflation spiked to 7.44% in July, the highest since April 2022, from 4.87% in the previous month, while liquidity stayed in deficit through last week after the Reserve Bank of India mandated banks to maintain additional cash reserve ratio.
Excess liquidity could pose a threat to the inflation outlook and a risk to potential financial stability.
Moreover, tight liquidity conditions will aid transmission of past rate hikes, IDFC First Bank said.
"The focus on keeping liquidity conditions tight indicates that incremental CRR (I-CRR) is likely to continue even after Sept. 8," IDFC's India economist, Gaura Sen Gupta, said.
KEY EVENTS:
** U.S. Aug consumer confidence - Aug. 29, Tuesday (7:30 p.m. IST)
** U.S. April-June GDP second estimate - Aug. 30, Wednesday (6:00 p.m. IST)
** India April-June growth data - Aug. 31, Thursday (5:00 p.m. IST)
** U.S. July core PCE price index - Aug. 31, Thursday (6:00 p.m. IST)
** U.S. initial weekly jobless claims week to Aug. 21 - Aug. 31, Thursday (6:00 p.m. IST)
** India S&P Global Mfg PMI - Sept. 1 (10:30 a.m. IST)
** U.S. Aug non-farm payrolls and unemployment rate - Sept. 1, Friday (6:00 p.m. IST)
** U.S. Aug S&P Global Mfg PMI - Sept. 1, Friday (7:15 p.m. IST)
** U.S. Aug ISM manufacturing PMI - Sept. 1, Friday (7:30 p.m. IST)
(Reporting by Nimesh Vora and Dharamraj Dhutia; Editing by Dhanya Ann Thoppil and Eileen Soreng)
