Rupee Falls Sharply Against American Dollar

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The rupee fell sharply today by as much 28 paise amid a stronger dollar and increasing prospects of a December rate hike by the US Federal Reserve. The rupee fell to over two-month low of 64.54 against the dollar at its day’s low, against Wednesday’s close of 64.26. On Wednesday, the rupee had logged its first gain in three sessions by rising 6 paise to 64.27 against the US currency owing to fresh dollar unwinding by exporters. In noon trade, the rupee was under pressure and traded at 64.47 against the US dollar.

Here are 5 Things To Know About Rupee-Dollar Rate Today

1) The dollar rose and US bond yields jumped to their highest levels in six weeks after the Federal Reserve overnight announced a plan to start shrinking its balance sheet in October and signalled one more rate hike later this year.

2) The Fed’s announcement of another interest rate hike this year took markets by surprise as a series of poor inflation readings had dampened expectations for such a step. “The Federal Open Market Committee (FOMC) was surprisingly upbeat and (held) the line on rate hikes in 2017 and 2018 which has caught traders by surprise,” said Jeffrey Halley, a senior market analyst at OANDA.

3) Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on other currencies as well as greenback-denominated commodities such as gold. Global gold prices were down at $1,299.31 an ounce, after earlier touching its lowest since late August at $1295.65.

4) Despite the recent weakness against the US dollar, the rupee is up around 5 per cent against the greenback. Strong portfolio flows into domestic debt markets has lifted the rupee this year.

5) But some analysts expect the rupee to weaken over the course of this year. India’s April-June current account deficit widened to 2.4 per cent of gross domestic product, or $14.3 billion – its highest in four years – as imports surged. Meanwhile, the RBI last week said that India’s foreign-exchange reserves rose past $400 billion for the first time ever. The strengthening reserves will help the RBI prevent rupee volatility ahead of an expected reduction in US stimulus, say analysts. “Rupee may move towards the 65 mark/dollar during the course of the year. The higher forex reserves are due to high capital flows even in the face of current account deficit increasing,” says Madan Sabnavis, chief economist of Care Ratings. By March, India Ratings expects rupee in the range of 65-65.5 against the dollar.

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