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Thursday, August 05, 2021

US Fed rate hike signal tanks rupee by 76p; inflation weighs

While benchmark 10-year bond yield finally closed down 3 basis points at 6.02 per cent, most other bond yields rose 3-4 basis points tracking the US bond yield, which had jumped 7.5 basis points.

By: ENS Economic Bureau | Mumbai |
Updated: June 18, 2021 3:36:48 am
Bombay Stock Exchange building. (Express archive photo)

Tracking a strong dollar overseas after the US Federal Reserve surprised the market by signalling rate hike sooner than expected, the rupee fell another 76 paise to close below the 74 per dollar level at 74.08. The rupee has lost 128 paise in the eight trading sessions till Thursday with higher inflation and oil prices adding to the weak sentiment.

While benchmark 10-year bond yield finally closed down 3 basis points at 6.02 per cent, most other bond yields rose 3-4 basis points tracking the US bond yield, which had jumped 7.5 basis points.

In the US, five-year, 30-year Treasury yield curve flattened to 117 bps, flattest since November, as of 1:37 pm EDT. Gold shed more than 2 per cent on Thursday, precipitating a selloff across precious metals with palladium set for its worst day in over a year, as the dollar gained ground. Spot gold fell 2.2 per cent to $1,772.53 per ounce by 12:07 pm EDT, having earlier touched its lowest since May 3 at $1,766.29.

Money market yields are inching higher and that is getting transmitted further along the curve, said a money market analyst.

The rupee – which is influenced by the US trend and capital flows — fell sharply in Thursday’s session after the Federal Reserve released its policy statement, wherein it held rates unchanged but turned a little hawkish in its commentary, indicating the possibility of a rate hike. “The Federal Reserve Chairman said that there had also been initial discussions about when to pull back on the Fed’s $120 billion in monthly bond purchases, a conversation that would be completed in coming months as the economy continues to heal,” said Gaurang Somaiyaa, forex & bullion analyst, Motilal Oswal Financial Services.

Meanwhile, the BSE Sensex on Thursday ended 178.65 points or 0.34 per cent lower at 52,323.33, while the broader NSE Nifty fell 76.15 points or 0.48 per cent to 15,691.40. Banking and finance stocks accounted for most of the losses, while the IT pack saw brisk buying, fuelled by a weak rupee.

Meanwhile, money market yields are inching higher and that is getting transmitted further along the curve in India. Three year and five-year OIS (overnight index swaps) rose 7 basis points to 4.64 per cent and 5.24 per cent, respectively.

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