Rupee Weakens On Sky High Dollar And Broader Risk Assets Sell-Off

The rupee fell sharply on a widespread risk assets sell-off and a surging dollar weighing heavily on regional currencies. after strong US services data reinforced and increased the bets for aggressive Federal Reserve rate hike path.

Bloomberg showed the rupee weakened to 79.8913, compared to Tuesday' close of 79.8375.

At the interbank foreign exchange market, the rupee opened at 79.93 against the greenback, registering a decline of 11 paise over its last close and in initial deals, the domestic currency also touched 79.86 against the dollar, reported PTI.

On Tuesday, the rupee depreciated 4 paise to close at 79.82 against the dollar.

According to Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors, RBI keeps selling dollars to curb the rupee fall. "All eyes will be on the European Central Bank (ECB) meeting as a 75 basis points rate hike gets discussed to bring inflation down," Mr Bhansali told PTI.

In yet another sign of unease, the yen dropped to a new 24-year low, the dollar spot index broke another record, and China fixed the yuan reference rate with the strongest bias ever.

The US dollar surge is hurting global currencies, tightening financial conditions and fueling inflation in other economies.

Data showed the US services sector unexpectedly expanded last month, supporting the idea that the economy is not in a recession and providing the Fed room to hike rates by another large 75 basis points on September 21.

The US dollar index, which compares the performance of the greenback against six major currencies, rose 0.08 per cent to 110.43, close to Tuesday's 20-year high of 110.57.

"Central bankers increasingly acknowledge that the battle to bring inflation back to target will cause a recession. Late stages in economic cycles have typically been good for the dollar and bad for the pro-cyclical currency blocs such as Europe and Asia. Expect the dollar to hold onto its gains for the rest of the year and don't rule out a further 5 per cent rally," said Chris Turner, Global Head of Markets at ING.