Despite settling at its worst level of 77.93 the previous session, the rupee set a new historic low early on Monday, breaching the 78 level versus the dollar for the very first time ever.
The rupee has been under pressure since March, when it first touched the 77 per dollar barrier, due to more vigorous’ Federal Reserve tightening forecasts after US inflation soared to four-decade highs.
During opening gains on Monday, the rupee fell 36 paise to a new low of 78.29 versus the US dollar.
Indeed, the rupee began at 78.20 versus the US dollar on the interbank foreign exchange, before changing course to quote at 78.29, a new low, down 36 paise from the prior closing.
Forex traders said investor morale was pulled down by weak Asian currencies, a lackluster trend in local stocks, and continued foreign capital outflows.
On Monday, the dollar rose over 0.4% to a 20-year high of 135 yen, pushing in on the 2002 high of 135.20 yen.
Forecasts of a more combative Fed are sending the dollar higher versus a variety of currencies. The dollar index, which measures how the greenback performs versus six other currencies, rose 0.3 percent to 104.52, its highest level in four weeks.
The rupee had sunk to an all-time low of 77.93 versus the dollar in the previous session, owing to aggressive Fed tightening forecasts as US inflation soared to a more than four-decade high.
“A phrase starting to be used more broadly amongst the central bank community is the need for ‘more forceful’ monetary tightening to address inflation,” said Chris Turner, Global Head of Markets at ING.
“Central bankers driving real interest rates higher will be a continued headwind for risk assets and pro-cyclical currencies. This is a dollar-positive environment. As above, one is starting to hear of the need for ‘more forceful’ monetary tightening around the world now,” he added.
Indeed, consumer prices in the United States accelerated in May, with gasoline prices reaching new highs and the cost of food skyrocketing, resulting in the largest annual increase in nearly four and a half years, implying that the Fed could retain interest rate hikes by 50 basis points through September to combat inflation.
As a consequence, the value of the dollar versus a basket of currencies surged to a near four-week high.
Image credits : Clout
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