Rupee Falls 6 Paise To 82.76 Per Dollar

The rupee edged a touch lower against a softening dollar on Tuesday but held mostly steady after gaining sharply in the previous session when it stalled a two-day losing streak.

Bloomberg showed the rupee was last changing hands at 82.7550 per dollar, compared to Monday's close of 82.7025.

"As Japan expanded the range of 10-year Japan Government bond yield from +/-0.25 per cent to +/-0.50 per cent, the risky asset markets fell as the last major central bank became hawkish on inflation which in Japan is at 1.99 per cent," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

According to PTI, at the interbank foreign exchange, the domestic currency fell 13 paise to close provisionally at 82.75 against the US dollar.

"As the dust settled in global financial markets after the series of economic events last week, markets would remain calmer going into the Christmas holiday," said Amit Pabari, Managing Director of CR Forex Advisors.

The domestic currency had made modest gains in the previous session as the dollar dropped, breaking a two-session losing skid. Additionally, expectations of a revival in China's demand contributed to the mood to some extent.

But investors broadly predict some bumps along the way for China's relaxation of Covid restrictions driven by a surge in cases and the possibility that US interest rates will increase more than anticipated in 2023.

The big news in the currency market was the surge in the yen to a 4-month peak after the Bank of Japan (BOJ)  stunned markets after it decided to rethink its yield curve control strategy and expand the trading range for the yield on 10-year government bonds.

The dollar tumbled as much as 3.1 per cent to 132.68 yen, a level last seen in mid-August.

"This was really out of the box," Bart Wakabayashi, Branch Manager at State Street in Tokyo, told Reuters.

"We're seeing them start to test the market about the exit strategy," he added. For dollar-yen, "we could see a break below 130. It's very much within reach this year."

The yen's gains were widespread.

The euro and sterling also fell by as much as 3.3 per cent to their lowest levels since late September, at 140.44 yen and 160.76 yen, respectively.

"You can look across any yen pair, and they look very similar – strength to the yen to the detriment to the currency you trade it against," Matt Simpson, Market Analyst at City Index, wrote in an email to Reuters.

"From here, it looks as though USD/JPY could be headed for 130 now that it has broken to a new cycle low."

Beyond the Japanese yen's dramatic move on Tuesday, investors continued to process the Federal Reserve's message of higher for longer interest rates.

The "hawkish Fed policy update remains fresh in the minds of investors," buoying US yields and the dollar, National Australia Bank Strategist Rodrigo Catril wrote in a client note, according to Reuters.

At the same time, "consolidation is the theme within FX" amid thinning market liquidity heading into the holiday season, he added.