The rupee weakened to a new record low early on Thursday as the greenback climbed to a fresh two-decade high after the US Federal Reserve hiked interest rates and projected a more aggressive policy path in the current tightening cycle.
Bloomberg quoted the rupee at 80.4863 against the greenback after hitting 80.4875, a record low compared to its previous close of just below the psychologically key 80-per-dollar mark.
PTI reported that the domestic currency fell 42 paise to a fresh all-time low of 80.38 against the US dollar in early trade.
Forex traders said the strength of the American currency in the overseas market, a muted trend in domestic equities, risk-off moods and firm crude oil prices weighed on the local unit, according to PTI.
"Given the broad dollar strength, the Reserve Bank of India too may look to revise its intervention function. We are likely to see a 80.10-80.50 range on Thursday," IFA Global Research Academy told PTI.
The dollar towered to a 20-year peak on safe-haven flows as the prospect of US interest rates rising further and faster than expected spooked investors.
The dollar index - a gauge of the greenback's performance against six of its major peers - increased 0.2 per cent to a record 20-year high of 111.72, up 2 per cent this week and roughly 17 per cent this year.
“After an initial bout of volatility in the first couple hours after the Fed hike, the market has clearly sided with the US dollar, which offers better carry and safe-haven appeal as downside US and global growth fears percolate,” David Croy, a strategist at Australia & New Zealand Banking Group, told Bloomberg.
According to Bloomberg, sentiment took an additional hit from Russia's escalation of its war with Ukraine and tensions between Beijing and Taiwan.
Following Russia's first reservist mobilisation since World War II, the euro sank to a 20-year low of $0.9807.
The Australian, New Zealand, Canadian, Singaporean, and Chinese currencies fell to two-year lows, while the value of the British pound fell to its lowest level in 37 years. As investors awaited a Bank of Japan meeting, the yen was close to a 24-year low.
"The Fed is not going to stop any time soon, and there's going to be an extended period of restrictive monetary policy for at least the next year or so," Sally Auld, chief investment officer at wealth manager JB Were in Sydney, told Reuters.
"What else do you buy except for the US dollar at the moment?" she added, citing growth clouds over Europe, Britain and China and the yen weakness as Japan holds interest rates low.
As investors priced out the possibility of a "soft" economic landing and prepared for harm to longer-term growth, the US yield curve extended its inversion, with short-end Treasuries being sold and the longer-end surging.
"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer," Fed Chair Jerome Powell told reporters after the rate hike announcement.
Announcing that the Fed was "strongly resolved" to reduce inflation down to the target level of 2 per cent, Jerome Powell vowed that the Fed will do so. He added that "we will remain at it until the job is done." The phrase was a play on the memoir "Keeping at It" by former Fed chairman Paul Volcker.
“In terms of Asia, I think the Federal Reserve's outcome is likely to keep pressure on risk assets,” Clara Cheong, a global market strategist at JPMorgan Asset Management, said on Bloomberg Radio. “It could especially hurt export-oriented companies due to the effect of a strong dollar.”
South Korea's won weakened past the 1,400 threshold to the greenback for the first time since 2009 and the yuan weakened even as China set its reference rate for the currency stronger-than-expected for a record 21st day.