17 Jun , 2021 By : Kanchan Joshi
The Indian rupee weakened beyond 74 level against US dollar today - its lowest level since early May - amid a broad strengthening of greenback after the US Federal Reserve surprised investors by signalling it might raise interest rates faster than expected. The partially convertible rupee was trading at 74.01 per dollar as compared to its previous close of 73.32.
The rupee however strengthened against the euro and was trading at 88.39 as compared to the previous close of 88.90.
The dollar index surged to two-month highs following the Fed's comments that their benchmark rate would rise twice by late 2023, earlier than a previous forecast of no hikes before 2024. The Fed indicated it sees the US economy improving faster than expected.
According to a Reuters poll, long bets on most of Asia's emerging currencies were trimmed as investors weigh the prospect of tighter monetary settings.
"The FOMC meet has sent out mixed signals. The decision to keep rates unchanged at 0 to 0.25 levels, maintain asset purchases at $120 a month and declaration that monetary policy will continue to give powerful support to growth are supportive for markets. But Fed's language is mildly hawkish since there are indications of bringing the rate hikes forward. Fed chief's remark that " inflation can be more persistent than we thought" is a signal that the Fed will be serious about tackling inflation by withdrawing accommodation at the right time," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"The rise in US 10-year bond yield by 10 bp to 1.58% and the Dollar index moving up to 91.50 are negatives for emerging markets like India. However, it is important to note that the Fed has raised the 2021 US GDP forecast to 7% from 6.5?rlier. This means higher EPS growth and better prospects for equities. Back home in India, Covid data continues to improve and reopenings are gathering momentum favouring unlock trades," he added.
Traders however believe that central bank intervention will likely stabilise the rupee in the short-term but it would also depend on how things pan out globally.
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