Indian rupee fell past the psychologically crucial mark of 85 a dollar at open after the dollar index touched the highest level in over two years. The index rose and pressured emerging–market currencies as the US Federal Reserve guided for fewer rate cuts.
Rupee started the day 8 paise weaker against the US dollar at 85.04. However, high demand for the greenback took the Indian unit to a record low of 85.07 against the US dollar shortly after open, according traders in the forex markets.
The Indian unit was trading 85.06 a dollar as of 09:49 a.m. The rupee settled at 84.996 a dollar on Wednesday.
"Forex market is fully reacting to hawkish Fed, which has said it will have two rate cuts in the coming financial year. The dollar has gained strength against major currencies. It's trading above 108 level. It's just the reaction to that," a dealer from a big state–owned bank said.
The Fed official reduced their rate cut projection for 2025 to 50 basis points compared to 100 basis points earlier. The central bank also raised inflation projection to 2.5% compared 2.1% earlier.
Following the hawkish tone of the US rate-setting panel, the dollar index jumped 1.23% to 108.27, touching the highest level since Nov. 11, 2022. The index was trading 0.06% higher at 108.10 as of 09:49 a.m.
Some traders said the Reserve Bank of India likely have sold the US unit to protect the Indian unit from a runaway depreciation.
Markets are going to be volatile on Thursday. Stability is expected after half way through the day, the dealer from a state-owned bank said. The Indian unit is expected to trade between 85.00 and 85.20 a dollar.
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