Rupee at two-week low on firming in US yields, fall in premium

The rupee closed at 82.2250 against the US dollar, its lowest level since April 3. The previous closing price of the currency was 82.04.

A forex dealer said that technically, 82.20 is a key level and the break indicates that further losses were possible for the rupee.

The dealer said a recent batch of mixed US data pushed back hopes of a rate cut and trade could remain volatile till the Federal Reserve’s monetary policy decision on May 3.

“One can buy USD/INR around 81.80-82.00 and sell above 82.80 to 83.00, as long as the six-month range of 81.50-83.00 is safe,” said Amit Pabri, Managing Director, CR Forex Advisors.

The dollar index jumped 0.2% after hovering near 101.80 all day as US Treasury yields held steady. The two-year yield, which is highly sensitive to Fed expectations, hit a one-month high of 4.2610%.

The CME Fedwatch tool showed that a 25 basis point (bps) hike from the Fed next month was almost certain, raising the probability of another hike in June to 30%.

This probability was less than 6% last week.

A Fed official said on Tuesday that more rate hikes are needed after May. St. Louis Fed chief James Bullard told Reuters in an interview that he favored another 25 bps hike next month and then 75 bps of additional tightening against market consensus for a possible cut later this year.

Meanwhile, USD/INR premium continued to decline, with the one-year implied yield declining 10 bps to 2.21%.

Yields have declined by over 30 bps since the Reserve Bank of India kept rates steady at 6.50% earlier this month.

The text of this story is published from a wire agency feed without any modification.