Strength in dollar index drags rupee down
The rupee has taken a beating over the past couple of days, weakening 0.4 per cent against the US dollar since Tuesday, as investors braced for higher interest rates in the world’s largest economy.
By Bhaskar Dutta, ETMarkets.com |
Agencies
NEW DELHI: The rupee weakened sharply versus the US dollar on Thursday because of the dollar gaining strength after the US Federal Reserve signalled that it could begin tapering of its bond purchases as early as November, dealers said.
At 10:35 hours (IST) the Indian currency was at 74.3475 to the US dollar against 74.1475 on Wednesday.
The dollar index, a gauge of the US currency's strength or weakness against a basket of six major rival currencies, last quoted at 94.30, having gained sharply from the 93.38 level at the start of this week.
The rupee has taken a beating over the past couple of days, weakening 0.4 per cent against the US dollar since Tuesday, as investors braced for higher interest rates in the world’s largest economy.
With the US Fed saying in its last policy statement that it could start scaling down its extraordinary quantitative easing from November, yields on US Treasury bonds have surged, marking an increase of around 20 basis points in the month so far.
Higher yields on US bonds can diminish the appeal of assets in emerging markets, such as India. An overnight fall in major US and Asian equities also weakened appetite for the Indian currency, dealers said.
Concerns regarding global economic growth have returned due to recent unfavourable data sets from China, the world’s second largest economy.
Not only is the Asian giant faced with a shortfall in power production, the likelihood of a debt default by real estate major Evergrande have fuelled concerns about demand for property in the country, with ripples likely to be felt in financial markets across the globe.
Elevated crude oil prices have also hit sentiment for the rupee, sparking inflationary concerns, as India is a major importer of the commodity.
After losing 45 cents to settle at $78.64, Brent crude oil futures for November on the ICE Futures Europe Exchange rose to $78.40 a barrel on Thursday.
The rupee may, however, be spared much damage as foreign banks are likely to sell dollars because of a flurry of overseas fund inflows into Indian companies, including through IPOs.
At 10:35 hours (IST) the Indian currency was at 74.3475 to the US dollar against 74.1475 on Wednesday.
The dollar index, a gauge of the US currency's strength or weakness against a basket of six major rival currencies, last quoted at 94.30, having gained sharply from the 93.38 level at the start of this week.
The rupee has taken a beating over the past couple of days, weakening 0.4 per cent against the US dollar since Tuesday, as investors braced for higher interest rates in the world’s largest economy.
With the US Fed saying in its last policy statement that it could start scaling down its extraordinary quantitative easing from November, yields on US Treasury bonds have surged, marking an increase of around 20 basis points in the month so far.
Higher yields on US bonds can diminish the appeal of assets in emerging markets, such as India. An overnight fall in major US and Asian equities also weakened appetite for the Indian currency, dealers said.
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Concerns regarding global economic growth have returned due to recent unfavourable data sets from China, the world’s second largest economy.
Not only is the Asian giant faced with a shortfall in power production, the likelihood of a debt default by real estate major Evergrande have fuelled concerns about demand for property in the country, with ripples likely to be felt in financial markets across the globe.
Elevated crude oil prices have also hit sentiment for the rupee, sparking inflationary concerns, as India is a major importer of the commodity.
After losing 45 cents to settle at $78.64, Brent crude oil futures for November on the ICE Futures Europe Exchange rose to $78.40 a barrel on Thursday.
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The rupee may, however, be spared much damage as foreign banks are likely to sell dollars because of a flurry of overseas fund inflows into Indian companies, including through IPOs.
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