Rupee weakens to over 79.60 to the dollar

The rupee weakened sharply at the start of Thursday, following a sell-off in risk assets and, while the dollar was ahead, a day after the minutes of the Federal Reserve’s July meeting indicated that rates would stay higher for longer to bring down inflation.

On the interbank exchange, the rupee opened at 79.60 and then fell to 79.68, registering a decline of 23 paise during the last close, according to PTI.

On Wednesday, the rupee gained 29 paise to settle at 79.45 against the dollar.

India’s equity benchmarks started on the back foot on Thursday, snapping a long winning streak after dismal global indexes indicated more risk on trades.

But the rupiah’s losses were limited by a fall in world crude prices.

Oil prices fell on Thursday, reversing the course of the previous session, as higher production from Russia and worries about a possible global recession weighed on futures.

Brent crude futures fell 33 cents, or 0.4%, to $93.32 a barrel. U.S. crude futures fell 40 cents, or 0.5%, to $87.71 a barrel.

Prices rose more than 1% in the previous session, although Brent fell to its lowest level since February.

Futures contracts have fallen in recent months as investors weighed in on economic data that raised concerns about a possible recession that could hurt energy demand.

“Rising dollar index offset by lower oil prices, keeping the rupee in a tight range, while India’s 10-year bond yields rose as oil prices fell” , Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, told PTI.

The rupiah’s rise is likely to be capped, thanks to the “falling dollar demand wall (on USD/INR)”, a trader at a private sector bank told Reuters. He pointed out that the dollar received “very good support” this week at the 79.20-79.30 level.

Potential dollar outflows associated with a private equity deal announced earlier this week will be watched by traders.

The dollar rose 0.6% against the yen overnight and held at 134.90 yen on Thursday. The euro bought $1.0184. The US Dollar Index remained stable at 106.570.

The greenback gained the most against the Antipodes, especially the Aussie. The New Zealand dollar also fell, losing nearly 1% to undo an initial jump after the central bank raised interest rates and steepened its expected rate hike path.

The greenback appreciated against the yen and the pound sterling and remained stable against the euro.

“The big picture for the dollar is that it is in a strong uptrend,” said Matt Simpson, senior analyst at broker City Index in Brisbane, adding that it has now halted a week-long decline.

“In some ways, the bulls are looking to backtrack and I think the Fed minutes gave them a reason to do that.”

Federal Reserve officials saw “little evidence” late last month that inflationary pressures in the United States were easing, the minutes said. The minutes signaled a possible slowing in the pace of the rises, but not a shift to cuts in 2023 that traders had until recently priced into interest rate futures.

“Once a sufficiently restrictive level has been reached, they will stick to it for a while,” Rabobank strategist Philip Marey said in a note to clients.

“This is in stark contrast to the early Fed pivot that markets priced in.”

Traders predict there is a 36% chance that the Fed will raise interest rates by 75 basis points for the third straight time in September. They also expect rates to peak in March at around 3.7% and then stay there until the end of 2023.

The pound also slid overnight after double-digit inflation focused investor worries on the risk of recession.

Consumer price inflation in Britain hit 10.1% in July, its highest level since February 1982, according to official figures, and after a brief jump the pound fell 0.4% at $1.2050.

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