Rupee Recovers From Record Low, Reflecting A Broader Relief Rally In Risk Assets

The rupee gained some ground early on Thursday to recover from a record low in the previous session, stalling a five-session losing streak and mirrored a broader risk assets rally after the British central bank intervened by starting an emergency bond-buying operation to stop a violent sell-off of UK assets.

But trading was skittish and the pound continued to decline, even as the British currency pulled back from historic lows, and prompted a pullback in Treasury yields and the dollar index.

The Bank of England's decision to buy up to £65 billion of UK government debt over the next two weeks spurred off a rally in risky assets late on Wednesday, with that action helping risk sentiment in Asia's markets and prevented a crisis for retirement funds.

As a result of that, the dollar index sank, Treasury yields dropped significantly, and US stocks recovered.

Bloomberg showed that sentiment reflected in the domestic currency's moves early on Thursday, with the rupee last trading at 81.5912 per dollar, after opening at 81.5988, compared to its record low close of 81.9400 in the previous session.

PTI reported that the rupee gained 35 paise to 81.58 against the US dollar in early trade, compared to tis previous close of 81.93. PTI said the domestic currency breached 82 per dollar for the first time ever in the previous session.

The "obvious question" for the rupee is how sustainable "the big moves" seen across developed markets are likely to be, a trader at a Mumbai-based bank told Reuters.

"The rupee will open higher but based on what has happened over the last week or so, the benefit of doubt will be more in favour of this just being a relief rally," added the trader.

Financial authorities in Asia have been on high alert recently, with countries like India, China, Japan, and South Korea intervening in the markets to stop a downward spiral in their respective currencies.

Following a verbal warning from the central bank against currency speculating, the onshore Chinese yuan gained for the first time in nine sessions.

On Wednesday, global bonds rallied while the Bloomberg dollar index fell by the biggest margin since the early days of the pandemic.

The risk-on mood gave pause to the US dollar's march higher and the dollar index had its worst session in 2-1/2 years as the greenback recoiled from lofty heights. It was soon trading firmly again, however, in Asia on Thursday.

The pressure on the rupee brought on by significant interest rate increases in the United States has investors anxiously awaiting the RBI's monetary policy committee's announcement on Friday, with expectations rising for a 50 basis point hike.