Rupee gains 9 paise after US Fed’s dovish stance

Our Bureau Mumbai | Updated on July 29, 2021

The rupee strengthened to its highest level in more than three weeks against the dollar on Thursday as the US Fed decided not to raise interest rates even as indications came that the tapering of its monthly bond purchases is still some time away.

Near-zero interest rates in the US is good news for India as foreign portfolio investors will continue to bet on the equity markets, which are on an upswing, offering higher returns.

The Federal Open Markets Committee expects to maintain an accommodative stance of monetary policy until two outcomes — maximum employment and inflation at the rate of 2 per cent over the longer run — are achieved.

With the greenback weakening due to the accommodative stance, the rupee made gains, closing about 9 paise stronger at a one-month high of 74.29 to the dollar against the previous close of 74.3825.

Abhishek Goenka, Founder & CEO, IFA Global, said: “The Fed communication was dovish. It seems more focussed on the labour market at this point. With labour force participation low, unemployment rate at 5.9 per cent and jobless claims still elevated, the Fed would want to wait and see the situation in labour market after unemployment benefits end in September.”

Hence, he believes the Fed may not even announce tapering in Jackson Hole meet in August. The tapering is expected to be gradual, calibrated and non-disruptive for risk assets.

India, preferred destination

Goenka emphasised that India is the preferred destination for carry seekers with Virus curve relatively under control, vaccinations progressing well and economic activity bouncing back.

However, the RBI may use this phase of dollar weakness to correct rupee overvaluation and bolster its forex reserves further.

Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives, Kotak Securities, said that the US central bank’s dovish tone did not go down well with the dollar bulls, resulting in an across-the-board sell-off in dollar against major global currencies.

However, against the rupee the losses were modest, due to heavy intervention from RBI, he said, adding that the bias continues to be downward.

Banerjee expects the dollar-rupee to trade in the 74-74.55 range on spot over the near term.

Published on July 29, 2021

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