Record low: US Fed rate hike jitters send Re to brink of 80/$

The domestic currency, which had closed at 79.63 at its previous close, slipped to a low of 79.97 intraday before closing lower at 79.88 on Thursday.

“The rupee has rolled down to another record low of 79.97 as the unabated red-hot inflation data in the US has raised the case for a full percentage point rate hike at the Fed’s meeting later this month, given the Fed chair’s stance that inflation must be brought down as quickly as possible,” said Sugandha Sachdeva, vice president, Religare Broking Ltd.

US annual consumer prices jumped by a scorching 9.1 per cent in June, the highest in four decades, topping expectations of an 8.8 per cent rise. The aggressive policy course by the US Federal Reserve to curb rising price pressures is exacerbating fears of a weakening global growth outlook and leading to risk aversion in the markets.

Besides, there has been a relentless rise in the dollar index, while the euro has been hit hard as it tumbled below parity against the dollar for the first time in almost 20 years. Europe is grappling with an energy supply crunch, owing to sanctions on Russia, which make it more susceptible to recession risks. This has led to a big moment depicting strength in the greenback, as markets are expecting the US Fed to raise rates more swiftly than its peers.

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When interest rates rise in the US, global funds prefer to pull out from emerging markets like India and invest in US markets. Foreign investors pulled out Rs 51,422 crore from domestic markets in June and Rs 8,685 crore in July so far.

Going forward, it remains to be seen whether the single currency can hold around the psychological parity level and regain some lost ground. All eyes will now be on the European Central Bank meeting lined up next week, which will provide further cues about the rupee-dollar exchange rate.

Meanwhile, the Sensex closed 98 points down at 53,416.15 on Thursday. “Tracking weak cues in global markets, Indian indices gave away their initial gains amid concerns over higher-than-expected US inflation data. Investors are increasingly expecting the Fed to carry out a minimum 75 bps rate hike this month in order to combat high inflation. On the domestic front, India’s WPI inflation moderated in June although it remains at the elevated levels, but is expected to ease further during the year,” said an analyst.