How the U.S. presidential election sent the rupee to a 2-month low

The rupee has fallen over 4 per cent since the beginning of October and is trading at its weakest in nearly two months. Uncertainty over the U.S. presidential election results, due this week, has led to a sharp fall in the rupee, analysts said.

The rupee dropped to 54.77, its weakest since September 14 and versus its previous close of 54.60/61, in early trade on Tuesday. However, it closed up 18 paise or 0.33 per cent at 54.42 today.

TS Harihar, senior vice president of ICICI Securities said markets may be a factoring the discontinuation of quantitative easing post the presidential election. The U.S. launched a third round of quantitative easing in September to boost growth and reduce unemployment. QE is used to increase the money supply by buying government securities or other securities from the market. It also adds pressure on the dollar because the liquidity flows from safe havens such as dollar and gold into riskier assets like equities and commodities.

"The rupee depreciation is happening despite FIIs being on the buy side... the weakness in rupee is a direct outcome of expectations that financial easing may slow down leading to a strengthening of the dollar," Mr Harihar added.

Risk-aversion has underpinned the dollar near a two-month high against a basket of major currencies on Monday. Most global currencies have taken a hit as the dollar has strengthened ahead of the presidential election.

The euro, which the rupee closely tracks, languished near a two-month low versus the dollar on Tuesday.

Moses Harding of IndusInd Bank said markets are in a risk off mode and the election result will provide a key.

"If Obama comes back to power, investors would be back on risk on mode," he added.


(With inputs from Reuters)