Rupee Stays Below To The Dollar, Ahead Of US Fed Meeting

The Indian rupee fell below 76 against the U.S. dollar, trading at its lowest in 18 months. A stronger dollar ahead of a meeting of the U.S. Federal Reserve and an acceleration of foreign portfolio outflows pushed the rupee lower.

The currency was last seen trading at 76.05 to the dollar.

"The Indian rupee has fallen to its lowest level since June 2020, which makes it an 18-month low against the US Dollar. The fall is largely driven by the fear of the rapid spread of the Omnicron variant. This post the UK PM's warning of a 'tidal wave' of new cases, and WHO stating it as a high global risk.

There is a broad weakness across Asian markets ahead of the US Fed's meeting that may announce an accelerated pace of liquidity tightening. A tapering by US Fed will lead to an outflow of fund flows from emerging markets. The inflation in the US has risen to a multi-decade high, posing a risk for the Fed to act sooner than expected.

The weakness in the rupee is despite record RBI reserves of around $640 billion. The central bank has added over $60 billion in forex reserves in FY22. The latest retail inflation data in India hit a 3-month high. The next few days will be dominated by US Fed, ECB, and BoJ as they meet to decide on their respective monetary policy. Central banks' action on rate, liquidity, and the resolve to aid recovery in growth rate will guide global equities and currencies," says Nish Bhatt, Founder & CEO, Millwood Kane International on rupee falling to an 18-month low.

According to Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services, the Rupee continued to remain under pressure following weakness in domestic equities and strength in the dollar against its major crosses.

"Weakness in the currency extended as market participants expect that the Federal Reserve in its upcoming meeting could increase the pace of tapering. At the same time, ECB and the BoE will be releasing their policy statements and that could trigger volatility for the major crosses. Today, from the US, PPI number will be released and that could trigger volatility for the dollar. We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 75.70 and 76.20."