Mumbai: The Indian rupee is expected to open slightly weaker on Monday as market expectations surrounding the incoming Trump administration’s policies continue to support the dollar, despite growing hopes of a Federal Reserve rate cut this month.

The 1-month non-deliverable forward indicates the rupee will open at around 84.69-84.70 against the U.S. dollar, slightly lower than its previous close of 84.6875.

Expectations for a 25-basis point rate cut at the Fed's December 17-18 meeting have increased to 83% from 66%, following payroll data that showed job growth roughly met forecasts in November, while the unemployment rate rose to 4.2%. However, these increased expectations are unlikely to provide significant support to regional currencies, given the ongoing risk of U.S. President-elect Donald Trump implementing higher trade tariffs.

MUFG Bank noted that Asian currencies may struggle to strengthen further, especially in the first half of 2025, as Trump's potential aggressive tariff policies could prompt investors to hedge against weakness in Asian currencies.

The dollar index stood at 106.05 after rising 0.5% on Friday, while U.S. bond yields fell following the labor market data. Most Asian currencies were lower, with the Korean won leading the declines, down 1%.

However, a reversal in portfolio outflows from India may provide some support for the rupee, with foreign investors becoming net buyers of over $4 billion in stocks and bonds in December, following two months of sustained outflows.

Despite this, the rupee’s decline is expected to moderate as the year-end approaches, though the general trend remains toward gradual depreciation below the 85 mark, according to a trader at a state-run bank.