On Wednesday, the Indian rupee hit a more-than-two-week low versus the dollar as the dollar mounted a comeback due to stronger U.S. Treasury yields. The rupee reached its lowest level since April 3 at 82.2250 to the dollar at the close. The previous close for the currency was 82.04. Technically, 82.20 is a crucial level, and the rupee could have further losses after the level was broken, according to a forex trader. Recent mixed U.S. statistics have delayed expectations of rate cuts, and the dealer warned that trading may be bumpy until the Federal Reserve makes its monetary policy decision on May 3.
Amit Pabari, managing director of CR Forex Advisors, stated that as long as the six-month range of 81.50-83.00 is secured, one can purchase USD/INR around 81.80-82.00 and sell above 82.80 to 83.00. As U.S. Treasury yields stayed stable, the dollar index increased by 0.2% after trading near 101.80 all day. The two-year yield hit a one-month high of 4.2610%, which is very sensitive to Fed predictions. According to the CME FedWatch tool, a rate increase of 25 basis points (bps) from the Fed is all but guaranteed next month, with the chance of another increase in June reaching up to 30%.
Last week, that possibility was less than 6%. On Tuesday, a Fed official stated that additional rate increases will be required after May. James Bullard, the head of the St. Louis Fed, said in an interview with Reuters that he preferred 75 bps of extra tightening above the market consensus for one more 25 bps hike next month and then possible cuts later this year.
Meanwhile, the one-year expected yield decreased by 10 bps to 2.21% as premiums on the USD/INR pair kept falling. Since the Reserve Bank of India kept rates unchanged at 6.50% earlier this month, the yield has decreased by more than 30 bps.
