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Indian stock markets were under severe pressure while 10-year yield hit 25-month today after the US Federal Reserve signalled it is ready to start tightening monetary policy to rein in inflation soon. The Indian rupee also fell to a one-month low against US dollar amid broad strength in the greenback. US Fed chief  said there's quite a bit of room to raise interest rates without threatening the labour market.

Indian stock market benchmark Sensex was down over 1200 points in noon trade while the partially convertible rupee was trading at 75.18 per dollar, its weakest since December 24.

India's benchmark 10-year bond yield rose to 6.71%, up 5 basis points from its previous close and its highest level since December 2019.

“The recent Fed meeting was no surprise to the market as such, but participants got further solid confirmation that the Fed is on the course of a rate hike in March and that will be followed by a Quantitative Tightening (Selling of bond or Balance sheet reduction) in upcoming meetings. The bond market fell and US yield shot up sharply. The US dollar index tested a one-month high above 96.50," said CR Forex Advisors in a note. 

High global oil prices have added to bearish pressure on the rupee, as India imports more than two-thirds of its oil needs, and rising fuel costs will spur domestic inflation.

“Apart from the stronger US dollar and FII selling in domestic stock markets, crude oil prices are also creating a headwind. The rising geopolitical tension between Russia-Ukraine and between UAE and Yemen could further disrupt demand-supply formulas and take the energy prices higher. This will further lead to again a widening trade deficit for net oil-importing countries," CR Forex Advisors added.  

“In a nutshell, the volatility in USD-INR has returned with a bang. Overall, we are expecting a short-term range in USD-INR to be from 74.30 to 75.70 with a bullish bias."

So far in January, foreign investors have dumped $2.2 billion of Indian shares after having bought a net $3.76 billion in 2021. They had bought $23.29 billion worth shares in 2020 and $14.23 billion in 2019. (With Agency Inputs)

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