Amid a surge in US bond yields and the US dollar index, the rupee on Monday opened 0.68% lower to hit a fresh record low of 81.55 against the greenback. Following last week’s announcement by the UK government on tax cuts and investment incentives to boost growth, Sterling slumped as much as 4.9% against the dollar to an all-time low of $1.0327.
While the 2-year US Treasury yield was at 4.2%, its highest level since October 12, 2007, the dollar index, which measures the greenback against a basket of 6 major currencies including sterling, the euro and the yen, reached 114.58 for the first time since May 2002 before easing to 113.73.
“Hawkish Fed outlook, political instability in China and sell-off in pound after the tax cut announcement is also disturbing the overall market sentiment. This week, RBI will release its policy statement and this is likely to influence the rupee that is currently falling sharply against the US dollar,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
The Indian rupee had reached a record low of 81.2250 on Friday, prompting the Reserve Bank of India (RBI) to sell dollars, according to reports. The RBI’s intervention had aided the rupee to turn briefly higher on Friday.
“The rupee will be under pressure as the dollar index may significantly rise as a result of the US Fed’s commitment to raise rates in a more hawkish manner in the upcoming months, which may lead the rupee to fall further to 82 to 83.5 levels,” Mohit Nigam, Head – PMS, Hem Securities, said.
In other forex markets, the Australian dollar slipped to $0.6487, its lowest since May 2020, the Canadian dollar reached a fresh trough at C$1.3625 per greenback, its weakest since July 2020. China’s offshore yuan slid to a new low of 7.1630 per dollar, its weakest since May 2020, Reuters data showed.
China’s central bank on Monday announced steps to slow the pace of the yuan’s recent depreciation by making it more expensive to bet against the currency. In Japan, where the central bank is sticking to ultra-easy policy to revive a fragile economy, authorities last week intervened in the currency market to buy yen for the first time since 1998.
