Rupee strengthens 18 paise to close at 2-month high on back of FPI inflows

Market participants said that the rupee gave up some gains by the end of the trade as the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar buys

The Indian rupee appreciated sharply on Friday to a two-month high against the US dollar on the back of foreign inflows into domestic equities, said currency dealers.

The local currency rose up to 83.03 per dollar during the day, strengthening by 25 paise, or 0.30 per cent – the highest intra-day gain in percentage terms since December 15, 2023, data showed.  

The rupee ended the session at 83.10 to a dollar, up 18 paise, or 0.22 per cent, its highest level since March 19. On Wednesday, the rupee had settled at 83.28 against the dollar.

The foreign exchange and bond markets were closed on Thursday on account of Buddha Purnima.

 

“Despite the dollar index trading higher in recent days, the rupee showed resilience due to significant economic development in India and substantial fund inflows into the capital markets. The expected range for the rupee is between 82.90 and 83.35,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities.

A dealer at a state-owned bank said private banks were seen selling dollars during the day.

Market participants said the rupee gave up some gains by the end of the trade as the Reserve bank of India intervened in the foreign exchange market via dollar buys. “The RBI will be there in the market to curb volatility, especially when the election results are due,” said a dealer at a private bank.

Most Asian currencies weakened following robust US economic data, which led investors to reduce their expectations for Federal Reserve rate cuts this year. The dollar index dipped slightly to 104.89 but remained on track for its largest weekly gain in over a month due to diminishing expectations of rate cuts.

According to CME FedWatch Tool, the likelihood of the US Federal Reserve maintaining its current rates at its September meeting increased to 46 per cent from 35 per cent a week earlier.

On the other hand, government bond yields inched up slightly as traders wound up their positions ahead of the weekend. The yield on the benchmark 10-year government bond settled at 7.00 per cent, against 6.99 per cent on Wednesday.

“There was some expectation of a rally in the market today, which did not happen,” said a dealer at a state-owned bank. “Nobody wants to take positions ahead of the weekend as nobody knows how US yields might react,” he added.

The bond market now eyes the upcoming monetary policy meeting in June to assess the central bank’s liquidity stance. Traders have been investing in the most liquid bond -- the 10-year benchmark bond -- reflecting a cautious approach amid uncertainties. The RBI has been taking measures like buyback and supply cut in order to steepen the yield curve, which is almost flat.

“Most of the bond yields were steady, except the 14-year bond. Traders are going for returns,” said a dealer at another state-owned bank.