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17-04-2024
Bureau Report + Agencies
NEW DELHI/ MUMBAI: The Indian rupee ended at a record closing low on Tuesday, as rising geopolitical tensions in the Middle East and worries that the Federal Reserve will delay interest rate cuts triggered a selloff in risky assets.
The rupee ended at 83.5350 to the US dollar, its weakest close on record, compared with 83.4500 in the previous session. The currency hit a lifetime low of 83.5475 on Tuesday but averted further losses on likely intervention by the central bank through state-run banks, traders said.
Indian financial markets will be closed on Wednesday.
“Given the heightened geopolitical conflict in the Middle East region, investors will prefer to go long on the dollar and we may see the rupee touch fresh record highs,” Jigar Trivedi, senior research analyst, currencies and commodities at Reliance Securities said.
The Reserve Bank of India is expected to intervene to curb the volatility since there are ample forex reserves available, he added.
Concerns that Israel could retaliate to Iran’s attack over the weekend hurt appetite for the rupee and other Asian currencies.
Israel’s Prime Minister Benjamin Netanyahu summoned his war cabinet for the second time in less than 24 hours on Monday to weigh a response to Iran’s attack, Reuters reported citing a government source.
An Iranian deputy minister said that Iran’s response to any Israeli retaliation would come in ‘seconds, not 12 days’.
Most Asian currencies dropped, with the Korean won and the Indonesian rupiah leading the losses.
The dollar index rose to its highest level in nearly six months, while Asian equities fell.
Bets of delayed policy easing by the Fed were reinforced following strong retail sales data in the US.
The 10-year Treasury yield was trading near five-month highs on expectations a rate cut in unlikely this quarter.
However, if the situation in the Middle East deteriorates, there could be “increased pressure” on the rupee, she said, adding that the outlook for the domestic unit hinges “significantly” on Israel’s response to the recent attack by Iran.
The rupee ended at 83.4500 per US dollar compared with 83.4125 at close on Friday. The domestic currency had touched its lifetime low of 83.4550 earlier this month.
Asian currencies were mostly lower following Iran’s retaliatory attack on Israel over the weekend. The war in Gaza, which Israel invaded after an attack by Hamas on Oct. 7, has ratcheted up tensions in the region.
The dollar index, which measures the greenback against a basket of six major currencies, was trading near 106.
Apart from the crisis in the Middle East, investors will be eyeing movement in US Treasury yields.
The 10-year US Treasury yield inched higher amid changing Federal Reserve policy expectations after higher-than-expected US inflation data. Investors now see only about two rate cuts this year.
“We no longer think policymakers will gain the confidence they (Fed) need to start cutting in June, or even at the following three meetings, absent clear signs of labor market deterioration,” BofA Securities said in a note.
“We now expect the Fed to start cutting rates in December.”
