Rupee touches new low of 82/$

28 Sept 2022 , 02:01 PM

In response to remarks made by US Federal Reserve members, the rupee fell precipitously against the greenback and reached a new low. This increased expectations that the US central bank would continue to raise interest rates quickly. The US dollar index reached new 20-year highs as foreign capital flowed into the greatest economy in the world due to expectations of a lengthier US monetary tightening cycle.

In the first trading of the day on Wednesday, the rupee fell to a new low of 81.94 against the US dollar. The local currency has fallen 2.4% against the dollar since the Fed announced a 75-bps rate rise on September 21, when it had finished at 81.58 per dollar on Tuesday. The rupee has lost almost 9.2% of its value versus the dollar thus far in 2022.

The rupee was trading at 81.85 to the dollar at 10:20 IST. President of the St. Louis Fed James Bullard stated on Tuesday that the US has a significant inflation problem and that the credibility of the country's inflation targeting system may be in jeopardy. In order to combat the 40-year high inflation, the Fed has already increased interest rates by 300 basis points since March 2022.

The dollar index recovered to 114.56 points, increasing power over important rival currencies. According to Ritesh Bhansali, vice president of Mecklai Financial Services, "US treasury yields are likely to incline towards the 4% levels as traders distraught about the likelihood of Fed resorting to higher interest rates.

Additionally, Fed officials' comments yesterday were rather pessimistic. In the near future, the rupee is anticipated to be under pressure and test levels of 82.50. From now on, any actions taken by the RBI to ease the pressure on the rupee would be eagerly anticipated, the speaker added.

Dealers claimed that despite selling dollars at about the 81.90 level, the Reserve Bank of India was not acting very aggressively. Without a doubt, RBI will need to keep a careful eye on the issue. If not today or tomorrow, the likelihood of direct or indirect intervention will increase on the policy day, which is September 30th, according to CR Forex Advisors. According to the company, the rupee would eventually trade between 82.50 and 83.00 to the dollar.

The RBI's foreign exchange reserves are now at a nearly two-year low as a result of the central bank's aggressive dollar selling during the last several months in an effort to shield the rupee from undue volatility.