The economic uptick in the US economy and rise in the US treasury yields are drumming down the rupee in the domestic market.
On Wednesday, the Indian rupee fell to an over three-month low of Rs 65.10 to a dollar, from the previous close of Rs 64.87 after the Federal Reserve chairman Jerome Powell’s upbeat economic assessment boosted demand for the greenback across a basket of currencies.
But the latest growth numbers that saw the GDP growth accelerates to 7.2% for the third quarter ended December 31, 2017, is expected to give some support to the rupee.
The rupee closed at Rs 65.18 to the dollar, about 0.44% from its previous day’s close of Rs 64.80. During the day, the rupee weakened to below Rs 65 to the dollar to reach a three-month low.
“It opened at 65.10 and touched a low of 65.31 a dollar, a level last seen on November 16, 2017, beating the comments by the Federal Reserve and of course the Punjab National Bank (PNB) fraud will continue to thrust its shadow on the forex market,” said a head of treasury of a public sector bank.
“The dollar stood near a three-week high against a basket of currencies on Wednesday, after Federal Reserve chairman Jerome Powell’s upbeat views on the economy bolstered bets on further Fed interest rate hikes this year. Against the yen, the dollar fell 0.2% on the day to 107.14 yen after the Bank of Japan on Wednesday trimmed the amount of super-long Japanese government bonds (JGBs) it offered to buy at its regular debt buying .operation. The euro held steady at $1.2230, after briefly slipping to $1.2221 its lowest since February 9. The common currency has lost momentum since hitting a three-year high of $1.2556 on February 16,” according to a report compiled by IDBI Bank.
“The PNB fraud and failure of the bank to honour its commitments on the letter of understanding(LoU) to the other Indian banks has resulted in a distrust among the foreign banks who are unwilling to lend dollars to the Indian banks beyond certain limits,” said another head of treasury of a public sector bank.
Arun Khurana, head of treasury, IndusInd Bank, however, said, “The PNB issue is not impacting the level of the rupee it is a host of other factors like the rise in the US treasury yields and the revival in the US economy which is strengthening the dollar across geographies.”
Yields on 10-year government bonds ended lower at 7.72% compared to Tuesday’s close of 7.67%. Bond yields and prices move in opposite directions.
The public sector banks are sitting on huge bond reserves for which they will have to make a mark to market provisions at the end of the quarter. Profits for the quarter will be hit due to the losses on their bond positions say treasury heads of several public sector banks.
The rupee, however, fell against the Japanese yen closing at 60.85 per yens from 60.64 on Tuesday. In forward market, the premium for dollar drifted further due to sustained receiving from exporters on Wednesday.
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