Rupee declines as Fed officials reiterate US rate hike path

NEW DELHI — On Thursday, the rupee had a significant decline versus the US dollar as Federal Reserve officials stated that the US central bank was on course to continue with swift rate hikes, which helped the US currency gain ground throughout the world.

At 10:10 AM in India, the rupee was trading at 79.45 to the dollar, up from Tuesday’s closing of 79.16.

According to Mary Daly, president of the San Francisco Fed, raising the rate by 50 basis points in September would be appropriate.

She opines that a 75-basis-point rise could be more appropriate if we only see inflation galloping ahead unabatedly and the labour market showing no signs of slowing down. However, when considering the incoming data, she said she keeps the 50 in mind.

The US dollar index, which compares the value of the dollar to six important rival currencies, recently stood at 106.41, down from 106.09 at 3:30 IST on Wednesday.

There has been widespread speculation that the Federal Reserve may delay the rate of rate increases in order to limit the harm to economic growth after recent disappointing US economic data.

The Federal Reserve raised interest rates by 75 basis points in July, bringing the year’s total number of rate hikes to 225 bps. Typically, higher US interest rates cause foreign investment to leave emerging nations like India.

Traders claimed that technical positioning in the market had made the rupee’s weakening on Thursday worse. Following the rupee’s recent strengthening, dealers engaged in aggressive wagers against the US dollar, which supported the local currency.

In the period from July 26 to August 2, the rupee outperformed most emerging market currencies, rising 1.4% against the dollar.

The rush to settle wagers on the US dollar has since subsided, according to brokers, and the rupee is now moving in line with general economic trends.

The movement of the rupee (on Thursday) is related to what occurred last week and in the first half of this week as per Kotak Securities’ vice president Anindya Banerjee. He adds the move last week was more of a shakeout of long positions (bets on the dollar) and unhedged exports.

He further says that the Indian rupee just played catch-up as the dollar index strengthened globally and this was more of a technical pullback because the positioning was too long.

In the near future, Banerjee estimated that the rupee would trade between 79.10 and 79.75 per US dollar.