Rupee rebounds on Euro, yields drop

The rupee reversed intraday losses on Wednesday, buoyed by dollar inflows and gains in the euro, although trade remained choppy as investors fretted over Europe's plan to resolve its debt crisis after Greece's referendum call.

The partially convertible rupee ended at 49.18/19 per dollar, 0.2% stronger from Tuesday's close of 49.27/28 and after trading in a wide band of 49.15 to 49.42 in the day.

“Rupee was helped higher mostly by the euro. But, volatility will continue given the uncertainty in the euro zone,” said Kamlakar Rao, head - foreign exchange trading at Allahabad Bank.

The federal bond yields dropped on hopes that limits on foreign investment in government bonds will be raised soon to help cope with heavy debt supplies, but a sharper fall was averted ahead of the US Fed's policy meet outcome.

The 10-year benchmark bond yield closed down 4 bps at 8.90%after moving in a range of 8.89 to 8.97% during the day. On Tuesday, it had hit 9% during trade, its highest since August 22, 2008. Rao expects exporter-led dollar selling to prevent the rupee from dropping past the 49.50 mark in the near term.

However, some traders believe euro zone's woes will only exacerbate in the coming days and rupee could cross the 30-month low of 50.32 hit on October 21. The one-month onshore forward premium on the rupee was at 26.75 points from 28 on Tuesday, the three-month premium was at 69.75 points from 66.50 and the one-year premium was at 170.25 points from 161.25 points. The one-month offshore non-deliverable forward contracts were quoted at 49.52, weaker versus the spot rupee rate.