Rupee comes crashing as Fed boosts dollar with rate-hike buoy
19 May 2016
The US Federal Reserve on Wednesday gave a shot-in-the-arm to an already strong dollar by signalling the possibility of a hike in interest rate in June, buoying the stock markets in the process.
The US currency touched a seven-week high against major currencies on Wednesday, pushing the Indian rupee down to levels near 67 to a dollar.
The rupee extended early losses and depreciated further against dollar on Wednesday on sustained dollar demand from importers, foreign fund outflows and rising global crude oil prices amid the dollar's strength against other currencies overseas.
Minutes of the US central bank's April policy meeting suggested that the Fed would likely raise interest rates in June if economic data pointed to stronger US second-quarter economic growth along with higher inflation and employment.
Markets had earlier priced in one interest rate hike from the Fed this year, but this week's US inflation data, recent comments from several Fed policymakers, and the minutes of the last policy meeting published on Wednesday have now all led analysts to believe that Fed would soon tighten monetary policy.
Analysts at the futures markets are also keeping alive the debate over the effects of Fed's interest rate hike with forecast of a graded increase in possibility of a rate hike – from a 34 per cent (up from 15 per cent) chance in June to 54 per cent (up from 33 per cent) chance in July – as CME FedWatch forecast.
The US dollar index DXY, which measures the greenback against a basket of currencies, rallied to its highest since late March on chances for an interest rate rise soon, and ended up 0.69 per cent.
The Japanese yen was down 0.99 per cent versus the greenback at 110.20 per dollar and the euro fell 0.85 per cent to $1.1215.
Crude oil futures turned lower as the dollar rose as commodities are usually priced in US dollars.