The rupee recovered substantially as the dollar fell from two-decade highs, despite the US Federal Reserve’s largest rate hike since 1994.
The rupee soared, rebounding quickly from a fresh all-time low as the dollar fell from two-decade highs, despite the US Federal Reserve delivering its highest rate hike since 1994.
After falling to a new all-time low finish of 78.22 per dollar the previous session, the rupee rose 15 paise to 78.07 per dollar in early trade on Thursday.
After the Fed delivered its biggest rate hike in decades, the dollar dropped from a 20-year high, but the Fed subsequently tempered its view by advising investors that such strong swings higher were unlikely to become a norm.
Markets had anticipated the 75 basis point (bp) increase and had priced in many more following a shockingly high inflation data last week. The dollar had reached fresh highs as the US yields increased, but it slid down following Fed Chair Jerome Powell’s news conference. “Today’s 75-basis-point rise is very high,” Fed Chairman Jerome Powell told reporters.
“I do not expect moves of this magnitude to be regular,” he said, adding that a 50-bp or 75-bp boost next month was inevitable.
The US dollar index versus a basket of six currencies reached a two-decade high of 105.79 on Wednesday and was trading at 104.84 in Asia on Thursday.
Fed members also raised their forecasts for the peak in the benchmark funds rate, but this was received with some comfort because it was slightly lower than what futures markets had predicted earlier this week.
“Against a market pricing in a 3.75 percent Fed funds rate by year’s end, Mr Powell’s words eased the market, weighing on the dollar,” ANZ Bank analysts wrote in a report.
“Some unwinding of volatility is anticipated in the coming days as US policy expectations return to earth, but the Fed still has lots to accomplish… risk appetite has breathed a sigh of relief – let’s see how long it lasts.”
Aside from the fundamentals of interest rate differentials, the Indian currency has been pushed down by ongoing capital outflows, sluggish domestic equity markets, and increased oil prices.
The currency has regularly touched record lows recently, after breaking below 77 per dollar for the first time in March, just days after Russia invaded Ukraine in late February.
The rupee broke through 78 for the first time this week and had been trading in a limited range since Monday.
However, the rupee regained some lost territory on Thursday, reflecting a global rebound in risk assets, and remained above 78 per dollar.
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