Rupee Weakens, But Largely Holds Its Ground Despite Two-Decade High Dollar

The rupee weakened but still held its ground amidst a massive global sell-off which pushed the dollar to a new two-decade high on Wednesday.

Rupee Weakens, But Largely Holds Its Ground Despite Two-Decade High Dollar

Rupee weakens against a soaring two-decade high dollar

The rupee weakened but still held its ground amidst a massive global sell-off on renewed bets for aggressive rate hikes by major central banks which pushed the dollar to a new two-decade high on Wednesday.

Bloomberg quoted the rupee at 79.9212 per dollar, compared to Tuesday's close of 79.8375. The domestic currency opened at 79.8550 and traded in 79.8400 to 79.9437 range, according to the news agency.

PTI reported that the rupee fell 7 paise to close provisionally at 79.89 against the greenback.

Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas told PTI that a strong dollar overseas hit the rupee sentiment.

"We expect the rupee to remain weak on strong US dollar and weak cues from global markets. the dollar index surged to a fresh 20-year high and is currently trading around 110.45 levels. Recovery in crude oil prices from lower levels may also weigh on rupee," Mr Choudhary said.

A sky high dollar this year has gained against almost major currency in the world, with the rupee hitting rock-bottom multiple times and weakening over 7 per cent in 2022, in tandem with the slump in other emerging market currencies.

A Reuters poll of foreign exchange strategists showed there is more trouble ahead for the bruised rupee already near its all-time low against the dollar, with the currency predicted to remain vulnerable to a worsening trade balance.

"Until the Fed puts on the brakes and prices of crude oil continue to decline meaningfully, the INR and other EM currencies will probably continue hitting all-time lows against the US dollar," Brendan McKenna, international economist and FX strategist with Wells Fargo Securities, told Reuters.

"Underwhelming growth momentum and a slowdown in China are now growing on the RBI's radar screen...which could exacerbate the sell-off over the next couple of months or so," he added.

The US dollar index, which measures the performance of the greenback against its six major peers, was around 110.24, having hit a 20-year high of 110.69 earlier in the session.

The Japanese yen fell to 144.015 versus the US dollar, breaching its previous weakest since August 1998 of 144.38 yen per dollar. 

The Chinese yuan sank to a two-year trough, closing in on the psychologically important 7 per dollar mark despite steps by authorities to stem its decline.

While the euro gained a touch, it was still below parity with the dollar, at $0.9925, and the British pound was a touch lower at $1.15045.

The new prime minister of Britain, Liz Truss, promised to take urgent action to support the struggling economy, which is now experiencing double-digit inflation and a likely protracted recession.

A sky high dollar driven by rising Treasury yields and concerns about the future of the economy is undermining risk assets and tightening financial conditions.

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