Rupee posts best weekly performance in about 4 years; premiums rise


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MUMBAI — The Indian rupee surged against the dollar on Friday on expectations of a less hawkish Federal Reserve stance on interest rates, clocking its biggest weekly advance since December 2018.

The rupee on Friday jumped to 80.7950 per U.S. dollar from 81.8075 in the previous session. That helped the local unit post a 2% increase this week.

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The rupee’s weekly surge came on the back of a slide in dollar index, which was accelerated by the softer-than-expected U.S. inflation data.

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The data made it highly likely that the Fed will deliver a smaller sized rate hike at its next meeting. Fed futures now assign a near 85% probability that the U.S. central bank will raise rates by 50 bps in December, as against the 75 bps it opted for in the last four meetings.

Goldman Sachs has penciled the Fed to slow the pace of rate increase to 50 bps in December and 25 bps each in February and March.

The dollar index dived more than 2% overnight and extended its losses on Friday to drop below 107.50. The index is headed for its worst weekly showing since March 2020.

Treasury yields tumbled and U.S. equities jumped on the back of the data, lifting rupee and other Asian currencies. The Korean won on Friday soared as much as 4.5%.

The rupee’s rally this week prompted the onshore and offshore forward rate differentials to narrow.

A pickup in foreign equity inflows further helped the rupee. According to NSDL data, foreign investors have bought about $2.3 billion of Indian equities so far this month. Indian equities are within striking distance of record highs.

Tracking the fall in Treasury yields, rupee forward premiums rose. The 1-year implied rate rose to around 2.42% from 2.25% last week. (Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)


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