The Indian rupee came to a record low of 80-to-a-dollar mark to hit its fresh entry again after July 19 while bond yields reached 6 basis-points, because of a descent fall in global equities triggered by the strong hawkish stance taken by the Chairman Jerome Powell at the Federal Reserve’s annual Jackson Hole Symposium.
The leading financial advisors at the symposium declared that the Fed will need to push inflation and demand lower, even if it results in economic contraction and a higher unemployment rate.
At 9.30am, the Indian currency was trading at 80.03 against the US dollar, down 0.25 per cent from its previous close. The rupee opened at 80.07 and touched a record low of 80.11 a dollar.
While, the 10-year bond yields increased 6.27 percent from its previous close of 6.21 percent. The bond yield and prices both move in opposite directions.
Talking about the other Asian currencies, South Korean ‘won’ declined 1.3 per cent, Thai’s ‘Baht’ lost 0.8 percent, Japanese ‘Yen’ 0.64 per cent, China’s ‘Renminbi/Yuan’ 0.6 percent, Taiwan dollar 0.6 percent, Malaysian Ringgit 0.5 percent, Indonesian Rupiah 0.43 percent and Singapore dollar 0.34 percent.
During the symposium, US Fed Chair Powell restated, “The central bank’s unconditional commitment to tackle inflation, besides highlighting risks posed by elevated and extended periods of high price growth.”
Just after his statement, rate-sensitive short-end and 10-year yields adjusted up, whilst stocks sold off sharply across the globe.
A leading think-tank and systems integrator in Japan, Nomura Research, “Chair Powell’s speech at the 2022 Jackson Hole Economic Symposium broadly met our expectations and reinforces our view the Fed will remain hawkish, even as the economy enters recession later this year.”
Adding the impact on the overall global economy, it added, “We expect a recession to start in Q4 2022, but increasingly entrenched inflation will likely result in continued Fed tightening through February before cuts in Q3 2023.”
Analysts maintained that the revamped ADP employment report and August NFP will be in focus with potential implications for the size of the Fed’s next rate hike in coming September.
US Fed Powell in his address last week at the symposium clearly stated, “There is a likely need for restrictive monetary policy for some time to curb high inflation and cautioned against loosening monetary conditions prematurely.”
Meanwhile, the Currency Derivatives & Interest Rate Derivatives at Kotak Securities, VP, Anindya Banerjee reiterated, “USDINR is on a strong wicket, with such a positive USD backdrop. A strong US Dollar Index, high US bond yields with a deeply inverted yield curve and weak equity markets all make it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile.”
He added, “This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward.”
Earlier in July, the Indian rupee had hit 80 per dollar for the first time ever, yet another record low in the wake of the continuous offloading on Indian stocks as set by the international investors. The rupee fell to 80.06 against dollar.
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