On Tuesday, the rupee appreciated against the dollar due to a rise in risk assets due to the British government’s abrupt change in fiscal policy, which encouraged investor confidence.
Bloomberg reports that the rupee was last trading at 82.2088 to the dollar, down from Monday’s finish of 82.3550.
Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, stated that the UK Finance Secretary’s decision to reverse tax cuts caused the dollar index to decline.
As the Reserve Bank of India is sitting on 82.40 selling dollars and not allowing a move above this level since the rupee’s record low of 82.68, he said, “The rupee must remain in a range of 82.00 to 82.50 (per dollar).”
The rupee strengthened from 82.35 in the previous session, when it traded in a roughly six-paisa range, resembling the steady trading pattern observed over the last week as the RBI protected the currency from severe depreciation after it repeatedly fell to all-time lows.
However, economists caution that the rupee may face a challenging future.
According to Amit Pabari, managing director of CR Forex Advisors, “even though the global markets have been in turmoil, witnessing the calmness and containment in the rupee for the past couple of sessions amid RBI’s intervention, one awaiting a stronger rupee might urge to think; is it a reversal in the rupee and bet otherwise.”
After a storm comes a calm, and prolonged calmness indicates an impending storm. “The one who presumes that RBI is having our back and eases up shall recall the past episodes when the rupee moved from 80 to 78.50 in 3 sessions and jumped back above 82 to make a new high after a brief consolidation.”
The pair is expected to rise towards 83.00-83.50 levels in the coming days, Mr. Pabari continued. “We maintain that pressure on the rupee will stay bound though in lag till the global turbulence eases out and the trend shifts across,” he said.
The rupee has declined sharply beyond the most recent trading session, as seen by the 52-week range of 73.7787 to 82.6950 per dollar, down about 10.8% for the year, signaling further declines are expected shortly.
A trader at a Mumbai-based bank told Reuters, “We think that following the initial fall (on USD/INR), we will either have another calm day, like yesterday, or the dollar wanders upward again to the 82.40 mark.”
The dealer continued by saying that given the possibility of solid dollar purchase orders at approximately 82.10-82.15, the rupee’s prospects of increasing its initial rise “are fairly limited.”
The dollar index, which measures the dollar’s value against six of its major rivals, including the yen, the euro, and the pound sterling, dropped to a 1-1/2-week low as European currencies were boosted by a sudden U-turn over the UK’s contentious tax-cutting “mini-budget.”
The economic strategy of British Prime Minister Liz Truss was rejected mainly by Jeremy Hunt, the country’s new finance minister.
Britain’s government bonds, currency, and equities all increased due to Mr. Hunt’s decision, bolstering Wall Street and global risk assets.
Asian currencies were mainly flat despite the overnight decrease in the dollar index and the risk-on attitude.
After shocking inflation statistics this week, chances for further more aggressive US policy tightening surged, and markets are now pricing additional jumbo-sized 75 basis point rises for November and December.
As traders anticipated probable more action by Tokyo, the dollar paused a rally against its major rivals on Tuesday but maintained its near a 32-year high of over 149 yen.
However, when we approach 150, currency dealers are concerned about possible unilateral intervention by Japanese authorities. However, Shinichiro Kadota, a Senior FX Strategist at Barclays in Tokyo, cautioned Reuters that the strategy’s performance could be constrained.
The probability of intervention rises if the market keeps moving upward, especially with some volatility, according to Mr. Kadota. The dollar-yen exchange rate is still under upward pressure as long as there is widespread dollar strength and anticipation that the Fed will raise interest rates.