The Indian rupee experiences sharp plummet, like its Asian counterparts, on Friday as the currency markets reacted to a further rise in long maturity U.S. yields following Fitch’s decision to cut the U.S. government’s credit rating. The rupee traded at 82.77 against the dollar, slipping from 82.72 on Thursday. Concurrently, the 10-year U.S. Treasury yield reached 4.20%, the highest level since November 2022. The escalating U.S. yields impacted the sentiment in Asian markets, with most currencies recording losses, and the Korean won emerged as the top loser.

Indian Rupee Experiences Sharp Plummet as Rise in U.S. Yields and Credit Rating Cut Weigh on Currency, Non-Farm Payrolls Report Awaited

The surge in U.S. yields, coupled with Fitch’s credit rating downgrade, has triggered concerns about the health of the U.S. economy and its potential impact on global markets. As U.S. yields increase, investors are drawn to dollar-denominated assets, which in turn, puts downward pressure on other currencies, including the Indian rupee.

Forex analysts predict a range of 82.60 to 82.80 for the USD/INR exchange rate, with expectations of lackluster market performance until the release of the U.S. non-farm payrolls report later in the day. The U.S. non-farm payrolls report provides crucial insights into the state of the U.S. labor market and remains a key determinant for the Federal Reserve’s decision on future rate hikes.

Economists polled by Reuters expect the non-farm payrolls report to show 200,000 job additions and month-on-month average wage growth of 0.3%. A strong jobs report with higher job additions and wage growth could bolster expectations of further rate hikes by the Federal Reserve. This, in turn, could lead to more demand for the dollar, potentially exerting additional downward pressure on the rupee and other emerging market currencies.

On the other hand, a weaker-than-expected jobs report could ease concerns about aggressive rate hikes, providing some respite to Asian currencies, including the rupee. However, uncertainties in the global economic landscape, particularly with regard to inflation and central bank policies, may continue to keep the forex market on edge.

The Indian rupee’s depreciation has led to speculation on how it may impact India’s inflation and the broader economy, especially considering that the country is still grappling with the economic fallout of the pandemic. Policymakers are closely monitoring the developments in the currency market to assess any potential implications for the domestic economy.

While the focus is on the U.S. non-farm payrolls report, traders are also closely tracking Indian equities for further cues on the rupee’s movement. The equity benchmark BSE Sensex showed a slight increase after hitting a one-month low on Thursday due to risk aversion fuelled by the rise in U.S. yields. Foreign investors’ net selling of Indian equities over the past two days, offloading shares worth $182 million and $38.3 million on Wednesday and Thursday, respectively, has also added pressure on the rupee.

As investors await the non-farm payrolls report, Indian policymakers are also closely monitoring the developments in the currency market. A depreciating rupee could impact inflation and pose challenges for the Indian economy, which is already grappling with the economic fallout of the pandemic.

Conclusion

In conclusion, the Indian rupee’s recent decline alongside most Asian peers is a result of the surge in U.S. yields and the credit rating cut by Fitch. The non-farm payrolls report will likely be a key determinant for the currency’s direction in the short term. As global economic uncertainties persist, forex traders and policymakers are bracing for potential volatility and remain watchful of any developments that could impact the Indian rupee and the broader currency market.

The forex market will continue to be influenced by global economic indicators and geopolitical events, making it imperative for traders to stay vigilant and adopt prudent risk management strategies. As the world economies recover from the pandemic-induced crisis, the currency market’s dynamics will remain fluid, and the rupee’s movement will be closely linked to the global economic landscape.

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