The rupee hit a fresh high as the dollar hit fresh highs on Wednesday after the White House downplayed the possibility of a currency deal to weaken the dollar, and hawkish remarks from Federal Reserve policymakers fueled the soaring greenback.
PTI reported that the national currency fell 40 paise to an all-time low of 81.93 against the US dollar at the start of trading.
Bloomberg last showed the rupee at 81.9050 to the dollar, after hitting 81.9350, its lowest level on record, from its previous close of 81.5788.
In the previous session, the rupee recovered from record lows to end with modest gains.
But what hasn’t helped the national currency is that India has ruled out any changes in fiscal policies that would have made it easier for national bonds to be included in global indices and rolled into billions of dollars.
“With no exception or deviation from its FX peers and with the USD at its highest level in two decades, the Rupee is expected to open near the 81.80 levels. trading near the 81.30 level, The inclusion of India bonds in the 2022 news boosted USD demand and the Rupee weakened past the 81.60 mark,” said said Amit Pabari, managing director of CR Forex Advisors.
Rising US bond yields and dollar pressure on developing market currencies increase the likelihood that these countries would have to raise interest rates further, which, in turn, would hurt economic growth there.
Indian investors await the monetary policy announcement from the Reserve Bank of India as it begins its three-day policy meeting on Wednesday.
On Wednesday, the dollar rose above a two-decade high against a basket of currencies on the back of rising Treasury yields.
In Asian trading, the US Dollar Index hit a new high of 114.68 and last rose more than 0.4% to around 114.60.
For the first time since 2010, the yield on 10-year US Treasury bonds reached 4%.
“It’s a combination of fallout from the UK…where gilt yields have gone ballistic. And that’s spread to other DM bond markets, so there’s a bit of a ripple effect,” Moh Siong Sim, currency strategist at Bank of Singapore, told Reuters.
“And of course…that’s against the backdrop of a very determined message from the Fed to do whatever it takes to bring inflation down.”
The pound lost around 1% of its value to $1.0634, reversing a modest 0.4% gain from the previous session and continuing its steep decline from its all-time low of $1.0327. at the start of the week.
Due to the Fed’s tightening policy, the dollar index hit a new high, the euro and the pound both fell, and the offshore yuan plunged to its lowest level ever against the dollar. The crucial level of 145 points against the dollar, where Japan intervened, was still close to the yen.
“The fact that we have such a strong increase in US yields is attracting flows into the US dollar,” Nanette Hechler-Fayd’herbe, chief investment officer of International Wealth Management for Credit Suisse Group AG, told Bloomberg. “Until monetary and fiscal policy around the world really comes to bolster their own currencies, we should expect a very strong dollar.”
The strengthening dollar on Wednesday led other currencies to multi-year lows, with the Australian dollar hitting a low of $0.6389, its lowest level since May 2020. At $0.55645, the kiwi fell almost 1 %, hitting its March low. 2020.