Rupee erases 81 mark as merrier-than-expected inflation takes a dig at dollar

At the interbank forex market, the rupee erased its 81-mark and ended at 80.7950 against the US dollar. This led to an increase of 2% in the rupee during this week from November 7 to November 11.

On the previous day, the rupee closed at 81.8075 against the US dollar.

Meanwhile, the US dollar slipped by over 2% overnight and further extended its downturn on Friday. The greenback struggled to float over the $107 mark against a basket of world currencies. This would be the highest single-day fall of the dollar since 2009 and the worst week since March 2020.

Jateen Trivedi, VP Analyst at LKP Securities said, “Rupee traded strong with gain more than 1% as dollar fell to single day highest fall since 2009, sending other currencies to high rates. Weak CPI in US gave the push to currency market on positive strive.”

Broadly, Asian currencies gained momentum against the dollar as treasury yields slipped and US equities witnessed strong buying. The benchmark 10-year Treasury yield was lower at 3.811%.

The US inflation data slowed for the fourth consecutive month at 7.7% in October– the lowest level since January this year. In June this year, the country’s consumer price index made its largest increase in 40 years at 9.1% — which pushed Fed to increase their key rates aggressively while maintaining a hawkish stance. 

Recently, US Fed made a fourth 75 basis points hike in policy rates to 3.25-4% from earlier 3-3.25%. FOMC last week stated that they are committed to taming inflationary pressure and hence maintained its aggressive approach towards monetary policy.

Now expectations of smaller-sized rate hike by the Fed have taken rounds and that led to investors picking up more equities and shrugging off dollars as a safe haven.

Meanwhile, Devang Mehta, Head – of Equity Advisory, Centrum Wealth said, “The lower-than-expected inflation print in the US triggered a rally across global equity markets. The US dollar also slumped against rival currencies while US bond yields fell sharply, as investors cheered the prospects of less hawkish moves by the US Federal reserve.”

According to a Reuters report, Goldman Sachs has pencilled the Fed to slow the pace of rate increase to 50 bps in December and 25 bps each in February and March.

Coming back to Indian markets, Sensex soared by 1,181.34 points or 1.95% to end at 1181.34, while Nifty 50 ended at 18,349.70 higher by 321.50 points or 1.78%. As per NSE data, FIIs made a huge buying of ₹3,958.23 crore in Indian equities on Friday alone. This week, overall, FIIs pumped in ₹6,329.63 crore in domestic equities.

On the outlook ahead, Mehta said, “Though too early to predict, but if the global volatility subsides & if the sentiment improves, India will receive a huge share of foreign institutional investments in addition to already strong domestic flows (SIPs close to 13000 Cr every month).”

He added, “Our markets have been like a silver lining with good macros & micros amidst the global dark clouds of high inflation, interest rates & global recession fears. With 4 C’s namely Corporate profitability, Credit growth, Consumption (discretionary & luxury) & Capex on a northward trajectory, markets will reward investors who keep the faith and are here for the longer haul.”