USD/INR erases portion of daily gains, steadies near 71.10

• RBI chief Das says several uncertainties cloud the growth and inflation outlook.
• Signs of weakness in US manufacturing sector weighs on USD.
• US Dollar Index struggles to extend rebound, stays below 97.50.

After staying relatively calm near the 71 handle in the Asian session, the USD/INR pair gained traction during the European trading hours and rose to its highest level in ten days 71.206 as the sour market mood continued to weigh on EM currencies.

However, with the greenback losing its strength amid disappointing data, the pair pulled away from its highs and was last seen trading at 71.10, where it was still up 0.2% on a daily basis.

RBI sounds cautiously optimistic

Additionally, in the Reserve Bank of India's (RBI) monetary policy meeting minutes, Governor Shaktikanta Das said several uncertainties continued to cloud growth and inflation outlook. "There is policy space, the use of which, however, needs to be appropriately timed for ensuring its optimal impact," Das further added.

On a positive note, Das explained that the improved monetary transmission and a quick resolution of global trade tensions could push growth above the projected trajectory to help the INR limit its losses. 

In the second half of the day, the Philadelphia Fed's monthly survey showed that the Manufacturing Index slumped to its lowest level in six months at 0.3 in December to revive concerns over a slowdown in the US manufacturing sector and caused the US Dollar Index to retrace its daily gains. As of writing, the index was down 0.05% on the day at 97.35. 

Technical levels to watch for