Rupee crosses 96 mark vs US dollar after Fed's first rate hike since 2023

The rupee depreciated 19 paise to breach the 96 level for the first time in over two months on Thursday against the US dollar as elevated oil ​prices and a rate hike by the US Federal Reserve pressured ​the currency.  At the interbank foreign exchange market, the rupee opened at 95.88 and lost further ground to trade at 96.10. 

On Wednesday, the local unit ended 3 paise lower at 95.91 against the American currency, extending its downward trend for the seventh session in a row.

 

Meanwhile, the Reserve Bank of India (RBI) is likely to intervene ​in the foreign exchange ‌market, a Reuters report said, citing three traders. 

Aamir Makda, commodity & currency analyst at Choice Broking said that rupee is expected to see high volatility pressured by elevated crude oil prices hovering at $105 per barrel and the broad strength of the American currency in the overseas market.

 

The Fed raised interest rates by 25 basis points on ​Wednesday, its first increase since 2023, with officials expecting one more increase ​this year. The hike pushed the dollar index, which gauges the greenback's strength against a basket of six currencies, above the 100 mark to its highest level in more than a month. At the last check, the index was trading 0.10 per cent higher at 100.07. READ MORE

 

Rajesh Palviya, head of research, Axis Direct, said that the rate hike marks a renewed shift towards tighter monetary conditions as inflation remains elevated. The Fed has also highlighted resilient domestic spending, strong productivity and robust capital investment, suggesting that the US economy currently has sufficient strength to absorb higher rates. "For the global economy, the immediate impact is likely to be higher-for-longer expectations, keeping US Treasury yields and the dollar firm and putting pressure on risk assets," he said. "For India, the combination of higher US yields, a stronger dollar and crude oil above $100 a barrel remains a challenging mix. The rupee could remain under pressure, while domestic bond yields may stay elevated and foreign portfolio flows could remain volatile." 

In the preceding six sessions, the rupee has lost 148 paise, or more than 1.4 per cent, since the closing level of 94.43 against the greenback recorded on September 4.