Rupee Surges Sharply From All-Time Low As Dollar Falls Off 2-Decade Highs

The rupee surged to rebound sharply from its new all-time low close as the dollar was off its two-decade highs even as the US Federal Reserve delivered its biggest rate hike since 1994.

After weakening to a new all-time low close of 78.22 per dollar in the previous session, the currency surged 15 paise to 78.07 against the US dollar in early trade on Thursday.

The dollar retreated from a 20-year high after the Fed delivered its biggest rate hike in decades but then tempered its outlook by telling investors that such sharp moves higher were unlikely to become a habit.

Markets had expected the 75 basis point (bp) hike and priced in several more after a surprisingly hot inflation reading last week. The dollar had scaled new heights as US yields rose, but it lurched lower after Fed Chair Jerome Powell's press conference.

"Today's 75-basis-point increase is an unusually large one," Fed's Mr Powell told reporters.

"I do not expect moves of this size to be common," he said, though adding that next month either a 50 bp or 75 bp hike was likely.

The greenback's measure against a basket of six currencies, which hit a two-decade high of 105.79 on Wednesday, traded at 104.84 in Asia on Thursday.

Fed members also drastically lifted their projections for the peak in the benchmark funds rate, but that was met with initial relief as it was a bit lower than what futures markets had implied earlier this week.

"Against a market pricing in a ~3.75% Fed funds rate by year-end, Mr Powell's comments soothed the market and that weighed on the dollar," analysts at ANZ Bank said in a note.

"Some unwind of volatility is likely in coming days as U.S. policy expectations fall back to earth, but the Fed still has plenty to do... risk appetite has breathed a sigh of relief - let's see if it lasts."

In addition to the interest rate differential dynamics, the Indian currency has been weighed by persistent capital outflows, weak domestic equity markets, and higher energy prices.

The currency has hit record lows repeatedly in recent months after breaching 77 per dollar for the first time in March, a few days after Russia invaded Ukraine in late February.

This week, the rupee breached 78 for the first time ever and has traded in a narrow range since Monday.

But on Thursday, tracking a global rally on risks assets, the rupee has regained some lost ground but still held above 78 per dollar.