The Indian rupee advanced against the US dollar on improving global risk sentiment following comments by US Federal Reserve Chairman Jerome Powell, while sovereign bonds gained. The rupee closed at 81.22 per dollar as compared to its previous close of 81.42. At the day’s high, the rupee hit a two-week high of 80.99 before paring some gains.
“Rupee strengthened in first half with gap up opening on the back of Fed Chair Powell’s positive comments on interest rate hike, but eventually rupee took resistance at 81.00 mark as comments had dark spots that would read interest rates much higher than current rate” higher as inflation is very high. Rupee pared its gains after rallying up to 81.00 as dollar index also found support near $105.25. Going beyond 81.00 will act as a strong resistance for the rupee; above 81.00 Rs Any breach will see a sharp rally towards the previous resistance of 80.00,” said Jatin Trivedi, VP Research Analyst at LKP Securities.
Indian government bond yields fell sharply to their lowest level in eleven weeks. The benchmark 10-year yield ended at 7.2095% – after its biggest single-session decline in two months – compared to Wednesday’s previous close of 7.2798%.
,fed chair powell In his speech, he clearly indicated that in the December policy, the US central bank will slow down the pace of rate hikes and increase rates by 50 basis points. He added that as the Fed has already raised rates rapidly and they take time to prop up the economy, it makes sense for officials to slow rate hikes. Powell said the Fed is entering a new phase of policy tightening where it will decide how high rates should go. He also said he didn’t want to tighten too much because cutting rates was something the Fed didn’t want to rush. Overall, the discourse is leaning towards moderation in bullish sentiment going forward and this has brought much needed comfort to the markets,” IFA Global said in a note.
Fed Chair Powell, however, warned that the fight against inflation is far from over. We. Treasury prices rose following the comments, with the yield on the 10-year note falling to 3.60%, the lowest in nearly two months. The dollar index fell sharply to 104.912.
A relatively less aggressive Fed could also ease the pressure on the Reserve Bank of India to hike rates. The next policy announcement by the Monetary Policy Committee (MPC) of RBI is due on 7 December.
Domestic brokerage JM Financial expects RBI to hike policy rates by 35 bps in December, but said it is too early to make any change in its policy stance. (with agency inputs)
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