Rupee trading at all-time low goes below 78/$1 for the first time

13 Jun 2022 , 10:40 AM

The rupee fell to an all-time low versus the US dollar on Monday, as a higher-than-expected inflation reading in the world’s largest economy fueled suspicion of aggressive Fed rate hikes, causing the currency to gain worldwide momentum.

For the first time ever, the partially convertible rupee fell below the 78/$1 level, closing at 78.2130/$1. On Friday, the Indian currency was trading at 77.8325 to the US dollar.

Consumer price inflation in the United States soared to a new forty-year high of 8.6% in May, beating estimates of roughly 8.3%, according to data released after Indian trade hours on Friday.

Global stock markets crashed as a result of the higher-than-expected inflation reading, while US Treasury bond yields rose. The 10-year US Treasury note yield was recently at 3.19 percent, up 14 basis points from the previous closing. Domestic equities also fell sharply on Monday, aggravating the rupee’s situation. The Nifty and the Sensex were both trading 2.4 percent lower at 09:20 IST.

Investors are concerned that the Fed may have to take an even more aggressive approach to manage inflation as a result of the US statistics. The Federal Reserve of the United States, which has already hiked interest rates 75 basis points since March 2022, is largely predicted to raise rates by 50 basis points at each of its sessions scheduled in June and July.

Traders are now concerned that the world’s largest economy’s central bank may implement a greater number of rate hikes, causing global capital to flee emerging nations like India. Overseas investors have already been large sellers of Indian assets in recent months, offloading Rs1.8 lakh crore in equities and Rs 14,055 crore in domestic debt so far in 2022.

Dealers are now trying to figure out how much the Reserve Bank of India will interfere in the foreign exchange market to keep the exchange rate from becoming too volatile.