The Indian rupee fell to 20.2 against the UAE dirham (53.9 versus US dollar) on Thursday as greenback made its strongest single day gain in 15 months after Federal Reserve signalled that it might raise interest rates at a much faster pace than expected.
The rupee hit nearly six-week low against the greenback on Thursday.
HDFC Bank economists said that given the strength in the dollar, it is likely that the rupee could now move into a new trading range against the greenback.
Jeremy Thomson-Cook, chief economist at Equals Money, said dollar strengthened following the Fed’s announcement, but he has doubts over the viability of a further rally.
“Instead of broader US dollar strength, we expect to see euroe and the Japanese yen weakness come to fore; the carry trade is still alive and well, but the dollar will no longer be sold to fund it, limiting dollar weakness,” he said.
Naeem Aslam, chief market analyst at AVA Trade, said Jerome Powell, chairman of the Federal Reserve, also hinted at a reduction in bond purchases and a faster rate of monetary tightening than what was previously anticipated.
“Not everything is negative as the Fed stuck to its mantra that rising inflation is only temporary and will most likely subside. However, it did revise its forecast for headline inflation in 2021 from 2.4 per cent in March to 3.4 per cent,” said Aslam.
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