Mumbai: The Indian rupee on Friday weakened to a fresh two-month low against US dollar after fears of higher interest rates by the US Federal Reserve led to a fresh plunge in global markets.
The rupee ended at 64.40, down 0.22% from its Thursday’s close of 64.26. The rupee opened at 64.42 a dollar and touched a low of 64.43, a level last seen on 18 December.
Traders were cautious after 10-year US bond yield climbed to almost 2.9%, a key indicator of inflationary pressure and the likelihood of higher interest rates. Analysts expect that it could hit 3% in the coming days.
Global markets started falling this week after strong US jobs data grew at a fast rate in January. It is good for the economy, analysts believe, but worry that it may hurt corporate profits and that rising wages are a sign of faster inflation which may prompt the Federal Reserve to raise interest rates at a faster pace.
Also, strong signals from the Bank of England that an interest rate increase was on the way added to expectations that the world’s major central banks were now firmly on course to wind down the emergency stimulus.
The benchmark Sensex index fell 1.18%, or 407.40 points, to 34,005.76. So far this year, it has fallen 1%.
So far this year, the rupee has fallen 0.8%, while foreign investors bought $1.48 billion and $2.06 billion in local equity and debt markets, respectively.
Bond yield rose ahead of the key consumer price inflation and Index of industrial production data due on Monday. According to Bloomberg analyst estimates, Index of industrial production will be at 6.1% in December from 8.4% a month ago while CPI will eb at 5.1% from 5.21% last month.
The government will also issue wholesale price inflation data on 14 February. According to Bloomberg analyst estimates, WPI will be at 3.2% in January from 3.58% in December.
The 10-year bond yield ended at 7.49% compared to its previous close of 7.47%. Bond yields and prices move in opposite directions.