Re slumps 31p on Fed hike worries

Tags: Opinion

The domestic currency may touch 69.5 by end-2017, says research report

The rupee on Friday slumped 31 by paise to close at 68.13 against the dollar amid a volatile market as comments from the Federal Reserve chairperson Janet Yellen convinced investors that a December rate hike is on the cards. In addition, foreign fund outflows kept pressure on the rupee.

HSBC Global Research said, “Our FX strategists see the rupee weakening against the US dollar to 68 by end-2016 and 69.5 by end-2017.”

The domestic unit opened substantially lower at 68 levels from overnight closing level of 67.82 at the Interbank Foreign Exchange due to strong dollar demand in the wake of sustained foreign capital outflows. It remained under immense pressure throughout the day and encountered extreme volatile momentum.

The dollar-rupee in the inter-bank offshore market traded up and the dollar index hovered near its highest level in over 13 years as the economic data from the world’s largest economy was better than expected which helped the greenback on further gaining grounds. Fed’s Yellen in a testimony to a congressional committee said that a rate increase could come “relatively soon” and cited good progress in the US economy but offered no new signals about what the central bank will do at its meeting next month. Moreover, holding the federal-funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” Yellen added.

Meanwhile, the benchmark BSE Sensex closed lower by 77.38 points at 26,150.24 while the Nifty 50 of the NSE closes 5.85 points lower. According to provisional exchange data, the foreign institutional investors (FIIs) were net sellers to the tune of Rs 926.32 crore and domestic institutional net buyers of Rs 1143.44 crore.

PTI adds: In the forward market, premium for dollar dropped due to fresh receivings from exporters. The benchmark six-month premium for April drifted to 131-133 paise from 140.5-142 paise and the far-forward October 2017 contract also fell sharply to 289.5-291.5 paise from 303.75-304.75 paise on Thursday.

The rupee tumbled by 88 paise or 1.30 per cent this week due to huge foreign funds outflows of over 18,840 crore from stocks and debt markets. The rupee had closed at 67.25 on Friday last.

Last Friday, the rupee had breached the 67-level on huge capital outflows in line with other emerging markets after expectations that Donald Trump’s new administration will increase fiscal stimulus, which could lead to higher interest rates in the US.

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