Concerns over hawkish Fed weigh on rupee; premiums inch up
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The Indian rupee declined against the dollar on Friday, in tandem with most of its Asian peers, on growing concerns over the Federal Reserve's hawkish outlook on monetary policy.
The rupee was at 82.8525 per U.S. dollar at 10:28 a.m. IST, compared with 82.7625 in the previous session.
The USD/INR pair has held a narrow 82.58-to-82.88 range this week on offers by public sector banks and on persistent corporate dollar demand, according to traders.
"The risk-averse sentiment and a recovery on the dollar index should weigh on the rupee," said Dilip Parmar, research analyst at HDFC Securities.
"The rupee has been trading in the narrow range, with low volatility, for the last two weeks."
The dollar index rose on Thursday and near-maturity Treasury yields moved up following an upward revision to U.S. third-quarter GDP data. Further, U.S. weekly initial jobless claims rose less than expected.
The positive data, relative to expectations, prompted worries over whether the Fed could opt for a larger rate hike at its next meeting in February. Currently, expectations are that the Fed could slow down to a 25 basis points rate hike.
Asian shares and currencies were mostly lower. India's Nifty 50 index was down more than 1%, slipping below the 18,000 level. S&P 500 index futures were little changed after a 1.5% slide overnight.
USD/INR forward premiums rose further, with the 1-year implied yield climbing to 2.17%. Paying by public sector banks in far forwards –– that, traders say, is likely on behalf of the Reserve Bank of India –– has lifted the 1-year by almost 60 bps over the last two weeks.
