Rupee Falls 30 Paise To 82.76 A Dollar As Fed Says More Hikes To Come

The rupee crashed against the dollar on Thursday after the Federal Reserve projected higher for longer interest rates despite cooling inflation, and recession risks which weighed on sentiment.

Bloomberg showed the rupee was last changing hands at 82.7625 per dollar in early trade, compared to its previous close of 82.4587.

A massive sell-off in domestic equities and a strong greenback overseas also weighed on the local unit, forex traders said.

According to PTI, the domestic currency dropped 27 paise to close provisionally at 82.76 against the US dollar. 

"As the Fed remained hawkish in its view on US interest rates to tackle inflation without being afraid of the impending recession, there was a deep sell-off in risk assets," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

"The dollar index rose from 103.50 to 104.25 as market awaited for the interest rate meetings of the Bank of England and the European Central Bank this evening. Asian currencies fell on the dollar's strength," he added.

The Fed raised interest rates by half a percentage point on Thursday. However, the dollar still suffered as investors questioned the extent to which the central bank would commit to slowing down the economy in its fight against cooling inflation.

"Two consecutive undershoots of (US) inflation have led the market to believe we are getting very close to the peak for interest rates, and rate cuts will soon be on the agenda," noted analysts at ING Bank.

Although Fed Chair Powell's speech initially gave the dollar a boost, it later gave back some of those gains as markets thought about the dimming growth prospects in the biggest economy in the world.

"The Fed does not want financial conditions to ease, but increasingly investors are saying: we hear what you are saying, and we know what you want, but we don't believe you," Christian Hoffmann, Portfolio Manager and Managing Director at Santa Fe, New Mexico-based Thornburg Investment Management, told Reuters.

The market's scepticism that the Fed might not raise rates as far as it has planned is fueled by the notion that inflation has probably peaked.

"We doubt that the funds rate will be kept at that restrictive level for that long, and I think markets, in the reaction, probably support that view as well," Carol Kong, a Currency Strategist at Commonwealth Bank of Australia, told Reuters.