Rupee sheds 40 paise against US dollar on aggressive Fed hike fears

The rupee gave up 0.5 per cent versus the dollar on Monday as a stronger-than-expected US jobs report rekindled concerns over aggressive rate hikes by the Federal Reserve, dealers said.

The domestic currency closed at 79.65 per US dollar against 79.25 per dollar at previous close. So far in the current calendar year, the rupee has shed 6.7 per cent versus the greenback.

On July 19, the rupee had weakened to a lifetime low of 80.06 per US dollar. However, the currency had regained much ground versus the dollar in the weeks that followed as weak US economic data strengthened speculation of the Fed slowing down on rate hikes.

Now, data released after Indian trading hours on Friday showed that the US economy added 528,000 jobs in the previous month, with the unemployment rate falling to a 50-year low. With economic growth in the US showing firm momentum, the Federal Reserve is likely to opt for steep rate increases in order to rein in 40-year high inflation in the world’s largest economy.

The US dollar index, which measures the US currency against six rival pairs, was at 106.34 at 3:30 pm IST. The index was at 105.88 at 3:30 pm on Friday.

The Federal Reserve has already raised interest rates by 225 basis points (bps) since March 2022. Recent sets of weak US economic data had led to speculation of the Fed slowing the down of pace of rate hikes in coming months.

The jobs data, however, has led to a reversal of that view, with traders now fearing a fresh 75-bp rate hike by the Federal Reserve in September.

“The rupee started the week on the weaker side after impressive US July jobs figures on Friday augur well for the dollar. After the past few days’ high volatilities, it has been lacklustre trade ahead of Tuesday’s holiday,” HDFC Securities Research Analyst Dilip Parma said to Business Standard.

“The direction remained down for the rupee even after stronger domestic equities and lower crude oil prices, mainly because of high dollar demands. Spot USDINR is expected to trade higher in the coming days and could head towards an all-time high. The pair is having resistance around 80 while on the downside at 78.85 will act as support,” he said.

On July 19, the rupee had weakened to a lifetime low of 80.06 per US dollar. However, the currency had regained much ground versus the dollar in the weeks that followed as weak US economic data strengthened speculation of the Fed slowing down on rate hikes.

Higher US interest rates typically lead to outflows of overseas investment from emerging market economies such as India.

After nine straight months of sales, FPIs finally turned net buyers of Indian equities in July. So far in August, overseas investors have net purchased $2 billion worth of domestic stocks, NSDL data showed.