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The Indian rupee falls vis-a-vis the US dollar due to the hawkish tilt from the US Fed which sent traders heavily dialling back in easing expectations next year and, in turn, sparked a broad dollar rally sending all currencies into a tailspin.
The rupee has fallen to a record low of 85.07 per US dollar.
Rupee Crosses 85 Mark Vs Dollar: The rupee on December 19 breached the 85-mark against the US dollar for the first time in history, declining 12 paise to an all-time low of 85.07 against the US dollar in the morning trade. It comes a hawkish stance from the US Federal Reserve, which sparked a broad dollar rally.
The development comes two months after the rupee had fallen below the 84 mark on October 11.
In the previous session, the rupee had dropped 3 paise to close at an all-time low of 84.94 against the US dollar, according to the Clearing Corporation of India Ltd (CCIL).
“The US Fed cut rates by 25 basis points but was very hawkish in its approach as it said that it might take another year or two to get to the goal of 2 per cent on inflation. The hawkish tilt from the US Fed sent traders heavily dialling back in easing expectations next year and, in turn, sparked a broad dollar rally sending all currencies into a tailspin,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
He added that the US Fed expects fewer cuts of 50 bps in 2025 (against four or three earlier) and another 50 bps in 2026. The dollar charged ahead on hawkish Fed outlook and flirted with a two-year peak at 108.04, while the US 10-year rose to 4.5130 per cent.
At the interbank foreign exchange, the rupee opened on a weak note and breached the crucial 85.00 level against the greenback.
It fell further to an all-time low of 85.06 against the American currency, registering a fall of 12 paise over its previous close, as dollar demand from importers, foreign fund outflows and a muted trend in domestic equities further dented investor sentiments.
“A broad sell-off in equities, commodities, and bonds has kept the dollar well bid. We expect a slow and steady depreciation as the Reserve Bank of India (RBI) may protect key levels though may not change the direction,” Bhansali added.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.01 per cent at 108.03.
Brent crude, the global oil benchmark, fell 0.42 per cent to USD 73.08 per barrel in futures trade, on a surging dollar and a hawkish FED after it signalled slower easing.
In the domestic equity market, the 30-share BSE Sensex was trading 910.95 points or 1.144 per cent down at 79,271.25 points in morning trade, while Nifty was down 281.15 points or 1.16 per cent to 23,917.70 points.
Foreign Institutional Investors (FIIs) offloaded Rs 1,316.81 crore in the capital markets on net basis on Wednesday, according to exchange data.
The rupee has remained under pressure in the past few months due to both global and local factors.
Domestically, the rising trade deficit added strain on the rupee. This increase in trade deficit was driven largely by record-high gold imports in November, said C R Forex Advisors MD Amit Pabari.
India’s exports in November contracted 4.85 per cent year-on-year to $32.11 billion, while the trade deficit widened to an all-time high of $37.84 billion due to a record surge in gold imports.
The country’s gold imports in November reached a record high of $14.86 billion, registering a four-fold increase, mainly on account of festival and wedding demands, according to commerce ministry data.
