Rupee Slips A Touch To 76.62, Tracking Dollar Demand On Fed Tightening

Mar 14, 2022

MUMBAI : The rupee slipped a touch early on Monday to 76.62 against the dollar, extending its weakness from Friday, when it did a U-turn to pare gains from earlier in the session to close over 0.4 per cent weaker At 76.61.

That despite as crude oil prices dipped below $110 a barrel on hopes for progress in Russian-Ukraine peace talks even as the conflict rages on.

The fall in the rupee is driven more by the allure of the dollar, with the greenback expected to be well bid on expectations of aggressive Federal Reserve rate hikes, as early as this week - after data showed US inflation spiked to its fastest in 40 years.

The dollar climbed to its highest since January 2017 against the yen, extending gains from the previous week. The US currency also gained on the Swiss franc in early trade, hitting 0.9363, its highest since late November.

That is primarily driven by expectations the Fed is all but sure to begin hiking interest rates from their pandemic lows at its meeting this week, with investors also looking for projections for the frequency and the size of future rate increases.

"After an indecisive week that kept investors on edge, we move towards more challenges ruling geopolitical headlines and central bank actions this week. As inflation is rising, the US Fed will increase (rates by) 25 basis points apart from that any hawkish commentary by them will lead to dollar strength and the dollar index will go above 100 levels," said Amit Pabari, Managing Director at CR Forex Advisors.

"All of the major DM and EM currencies will likely lose their ground against the US dollar as it gains two side support from safe-haven demand in the current war scenario and rising US interest rates," he added.