Mumbai | The rupee depreciated 8 paise to close at 94.20 (provisional) against the US dollar on Friday, pressured by a stronger greenback and weak domestic equities.
Forex traders said the US dollar has strengthened, driven by stronger-than-expected US inflation data, rising Treasury yields and hawkish remarks from US Federal Reserve officials, reinforcing expectations of further monetary tightening.
Rising US yields and expectations of more Fed rate hikes could keep the rupee under pressure. Moreover, a stronger dollar and more attractive US assets might spark fresh capital outflows from emerging markets, they added.
At the interbank foreign exchange market, the rupee opened at 94.07 against the dollar. During intra-day trade, it witnessed a high of 94.05 and a low of 94.28. The local unit settled at 94.20 (provisional), lower by 8 paise from its previous close.
On Thursday, the rupee depreciated 41 paise to close at 94.12 against the US dollar.
"The rupee traded lower, declining around 0.22 per cent to 94.23, as the Dollar Index climbed above 103, keeping pressure on the domestic currency. Although sustained FII buying in recent sessions has provided some support, broader sentiment remains cautious amid dollar strength and ongoing geopolitical tensions involving Iran, the Gulf region and the US," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
Continued uncertainty in West Asia could keep currency markets volatile and limit recovery in the near term. Going ahead, the rupee is expected to remain sensitive to dollar movements, foreign fund flows and geopolitical developments, with a trading range of 93.85–94.60, Trivedi added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 103.16, higher by 0.12 per cent.
"The dollar has strengthened sharply on Thursday, with the US Dollar Index rising 0.29 per cent to 103.17, its highest level in nearly 19 months," CR Forex Advisors MD, Amit Pabari, said.
Pabari further noted that markets are now pricing in an 85 per cent probability of a December Fed rate hike. The US 2-year Treasury yield surged 13.96 bps to 4.867 per cent, while the 10-year yield climbed 12.39 bps to 5.113 per cent. The rise in yields is enhancing the appeal of US assets and attracting demand towards the dollar.
"Rising US yields and expectations of further Fed tightening could keep the rupee under pressure by strengthening the dollar and making US assets more attractive, potentially triggering fresh foreign capital outflows from emerging markets," he said.
Brent crude, the global oil benchmark, was trading 0.37 per cent lower at USD 95.47 per barrel in futures trade.
On the domestic equity market front, Sensex dropped 318.56 points to settle at 81,592.45, while the Nifty fell 155.05 points to 25,144.30.
Foreign institutional investors (FIIs) purchased equities worth Rs 12,563.33 crore on Wednesday, according to exchange data.
