Rupee Gains Against Softening Dollar As Investors Reassess Policy Tightening

The rupee gained against the dollar, extending gains from the previous session as investors analysed whether pricing in of monetary tightening to combat inflation in the US and Europe is coming closer.

Currency weakness is causing problems for countries all over the world due to the strength of the greenback amid tightening US monetary policy.

While the Bloomberg Dollar Spot Index slipped on Friday, it remained in sight of a record high, suggesting no let-up in forex markets volatility anytime soon.

Still, PTI reported that the rupee gained 8 paise to 79.61 against US dollar in early trade, while Bloomberg quoted the Indian currency at 79.6387, compared to its previous close of 79.7175.

That shows the rupee holding its ground against a rampant dollar as the Reserve Bank of India Governor suggested earlier this week and the central bank's willingness and indulgence to shore up extreme gyrations of the currency, even at the cost of declining forex reserves.

On the other hand, what has helped the dollar's allure this year is the Fed's aggressive rate hike policy stance, which Chair Jerome Powell reaffirmed on Thursday.

Oil prices turned down in early trade on Friday after a slight rebound in the previous session, leaving them set to fall for a second straight week and down 4 per cent for the week, languishing below $90 per barrel.

That is likely to boost the rupee, as India imports over 80 per cent of its oil needs and a stronger currency defends the country's external trade balances.

Meanwhile, the European Central Bank hikes its key interest rates by a record 75 basis points, pushing the euro above parity with the dollar. 

"ECB raised interest rates by 75 bps, taking the euro higher and the dollar index lower at 109.08 levels. Brent oil remains below $90 per barrel. Asian currencies gain against the dollar," Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors, told PTI.

The rupee will stay in a range of 79.40 to 79.80 for the day, he added.