Rupee notches best week in 2-mths, forward premiums surge

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The rupee ended the session at a one-month high of 81.3250 per dollar, against its last close of 81.55.

This was the local currency’s best week since the week ending November 11, gaining around 1.7% after breaking out of a narrow trading range.

Public sector (PSU) banks are likely to buy dollars around the 81.30 levels on Friday, suggesting that 81.20 may remain a resistance level for the rupee in the near term, a private bank trader said .

Traders also cited that the current levels are attractive for importers to jump into.

The rupee and other Asian currencies advanced while the dollar index extended losses to 102.00 levels after the US inflation data.

US consumer prices on a month-over-month basis fell for the first time in more than 2-1/2 years in December, stoking hopes that the Fed could raise rates by 25 basis points (bps) smaller next month.

Fed funds futures now show only an almost 9% chance of a bigger rate hike.

However, not everyone was convinced that the Fed would increase rates in line with market expectations, and this could introduce volatility in the rupee.

“We do not rule out a retest of the level of 83 per dollar in the first quarter,” said Vivek Kumar, an economist at QuantEco Research, who predicted an increase of 50 bps by the Fed.

India’s wide current account deficit also remains one of the main reasons for the rupee’s weakness, Kumar added.

Meanwhile, the forward premiums of the rupee have increased, and a decline in Treasury yields has followed. The one-year implied yield rose to 2.26%, the highest since November 2022, with traders saying PSU banks were on offer.

For the week, the 1-year yield rose about 21 bps.

(Reporting by Anushka Trivedi; Editing by Janane Venkatraman)

By Anushka Trivedi

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