Rupee Weakens Toward 79.80 As Dollar Reigns Supreme

The rupee weakened and headed towards 79.80 per dollar on Friday, driven by concerns that the Federal Reserve could continue to hike rates aggressively boosting the greenback, which made all the running as recession clouds gathered.

PTI reported that at the interbank foreign exchange, the rupee opened at 79.75 against the US dollar, then fell to 79.76, registering a decline of 12 paise over the previous close. On Thursday, the rupee depreciated 19 paise to close at 79.64 against the US dollar.

Reuters quoted the rupee at at 79.7675, down from 79.6725 in the previous session.

Bloomberg showed the Indian currency was last changing hands at 79.7413, down from Thursday's close of 79.6800. The news agency showed the rupee opened weaker at 79.7550 and traded in 79.728-779.7763 per dollar range.

The rupee opened weaker on Friday after the dollar index reached a 1-month high following comments from US Federal Reserve officials over the quantum of rate hikes, Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI.

Supports for the USD/INR spot pair are at 79.60 and 79.50 and resistances are at 79.80 and 79.90. A break above the resistances will push the pair to 80.15 levels, Mr Iyer said.

"The rupee could also track the weakness in Asian and emerging market peers led by a fall in the offshore Chinese Yuan," Iyer said, adding that "additionally, strong importers demand for dollars and speculative buying of dollars could also weigh on the domestic unit."

Dollar In Demand

The dollar against a basket of currencies was up 1.8 per cent for the week 107.60.

The "R" alarm is also going off in Europe, where natural gas prices reached record highs on Thursday, adding to an inflation pulse that will undoubtedly lead to more painful policy tightening and increase the likelihood of a recession.

The euro has fallen back toward its low point from July at $0.9950, or over 1.7 per cent, to $1.0078 this week due to the bleak economic outlook.

The dollar has also gained 2.0 per cent on the yen this week to reach 136.28, the highest since late July.

Another victim was the pound, which fell 1.8 per cent for the week to $1.1917.

Investors worry that Britain's sky-high inflation rate of 10.1 per cent may prompt the Bank of England (BoE) to continue raising interest rates, potentially triggering a recession.

According to a monthly survey by data provider Gfk, the cost-of-living problem caused British consumer mood to fall to its lowest level on record in August.

"Strength in the wage and price data have raised the bar for inaction and we now think the BoE will need to see clearer signs of a hard landing in order to pause," said analysts at JPMorgan who raised their rate forecasts by 75 basis points to 3 per cent.

"We look for a two quarter recession starting in 4Q that results in a cumulative 0.8 per cent drop in GDP."