The rupee gave up its gains from earlier in the session to reverse and close over 0.4% weaker, at 76.61 on Friday, driven broadly by a leg up in the dollar on expectations of aggressive Fed rate hikes after a spike in the US inflation to its fastest in 40 years.
Against the greenback, the rupee pares initial gains and settles 18 paise lower at 76.61 on Friday after the Indian currency had appreciated by 19 paise to close at 76.43 per dollar, according to PTI.
“The rupee snapped gains on dollar demand from oil importers and state-run power companies. The dollar strengthening against major currencies following stronger US economic data also weighed,” Dilip Parmar, Research Analyst at HDFC Securities, told PTI.
Mr Parmar further added that risk appetite remained shaky with trading conditions still choppy and volatile; the focus will remain on geopolitical news and crude oil prices.
Still, domestic bourses managed to squeeze out paltry gains from a volatile trading day, marking their rise for the fourth straight session.
The fortunes of the rupee, which started the day on a high, turned to lose momentum on supercharged volatility in global markets.
The pull and push of news flow from increasing sanctions on Russia by the West in retaliation to Moscow’s invasion of Ukraine, the most significant attack on a European state since World War Two, and the Kremlin’s counter threats have whiplashed financial markets.
The reversal in the rupee’s fortunes was also driven by a broad dollar strength on expectations’ firming of a faster and more aggressive Fed rate hike path after US inflation soared to the most significant annual increase in four decades.
That even before the surge in commodities prices caused by the war in Ukraine has had its full effect.
The dollar was up over 1.5 per cent as inflation is poised to accelerate further in the months ahead as Russia’s war against Ukraine drives up the costs of crude oil and other commodities.
That expected Fed tightening will lead to a divergence in interest rates compared to most major economies, albeit at varying degrees, which brought dollar bulls out in force.
The greenback was expected to maintain its strength as other major economies would struggle to match the Fed’s faster rate hike path.
Sentiment also suffered on worries over Russia’s war against Ukraine, after talks between their foreign ministers on Thursday brought little respite in the conflict between the two countries.
“The conflict between Russia and Ukraine continues, surging oil prices and its impact on inflation is what is making investors jittery,” said Amol Athawale, Deputy Vice President for Technical Research at Kotak Securities.