US Fed talk of more hikes drags rupee to weakest monthly close

economictimes.indiatimes.com:

rupee on Thursday closed at its weakest level versus the US dollar in almost a month as the minutes of the Federal Reserve's latest meeting indicated that monetary policy would continue to be tightened in the world's largest economy, thus narrowing the rate differential with India. The domestic currency closed at 82.51 per US dollar down 22 paise from the previous day's close. Thursday's level is the weakest closing for the rupee since June 8 while the price action marks the sharpest single-day decline for the rupee since June 5, Bloomberg data showed.

So far in 2023, the local currency has appreciated 0.3% against the greenback versus a depreciation of around 10% the previous year. The minutes of the Fed's June 13-14 meeting, released after Indian trading hours on Wednesday, suggested that while the US central bank had paused rate hikes in June, concerns over persistently elevated inflation were large enough to likely prompt fresh rate increases later in 2023. Key US market gauges indicate a close-to-90% chance of the Fed raising interest rates at its next meeting this month.

The Fed has raised interest rates by 500 basis points since March 2022. Higher interest rates in the US typically lead to a flow of global capital away from emerging market economies, exerting pressures on their currencies. «The Indian rupee registered its biggest single-day loss in a month against the US dollar following the hawkish June FOMC minutes and short covering from the rupee bulls.