Rupee ended lower, Dollar steady vs. major currencies

Tuesday,   21-Mar-2023   04:20 PM (IST)

The Indian rupee ended the session lower at 82.6550/6650 levels compared to its opening at 82.54/55 levels after touching the low of 82.6975/7075 levels aligning with its Asian peers as traders cited dollar buying by large players. Investors were wary ahead of a pivotal U.S. Federal Reserve bank meeting decision due amid a banking sector crisis. Initial dollar bids from large state-run corporates and lacklustre trading volumes ahead of the Fed meeting led to the rupee staying contained in a range. Rupee traded in the range of 82.54-82.6975 levels today. Heading into the risk event, traders said they built "slightly" long USD/INR positions as foreign exchange markets are shut in India on Wednesday. Asian currencies were flat to marginally higher, tracking a sombre dollar index. Indian government bond yields were up as market awaits outcome of the Fed's monetary policy meeting due Wednesday in the backdrop of global banking turmoil. Indian shares closed higher as financials stocks rallied following a raft of measures to stabilise the global banking sector provided temporary relief. The Nifty 50 index closed 0.70% higher at 17,107.50, while the S&P BSE Sensex rose 0.77% to 58,074.68. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 2.99%, 2.48% and 2.36% respectively.

The dollar steadied and sterling fell on Tuesday as traders reckoned banking stress would keep the Federal Reserve and the Bank of England from hiking rates much further, or at all, later in the week. Investors remained concerned over the fate of the banking sector after U.S. lender First Republic shares tumbled nearly 50% on Monday on fears it will need a second rescue. But European banks rallied on Tuesday for a second consecutive day eased some of those fears following UBS Group's state-backed takeover of Credit Suisse. The focus has moved to central banks meetings due this week. Markets are pricing in a 25% chance that the Fed will stand pat when it announces its monetary policy decision on Wednesday, with a 75% chance of a 25 basis point rate hike, according to the CME FedWatch tool. The dollar has followed those expectations lower, though general nervousness in financial markets has tempered selling. The greenback ticked about 0.1% higher to $1.0729 per euro, while the dollar index, which measures the U.S. currency against six peers, flattened at 103.36. With UK inflation data on Wednesday expected to show some easing and amid the global financial market instability, money markets are now pricing in a 50% chance of no interest rate hike by the BoE on Thursday and the same chance of a 25 basis-point increase. Data showed that Britain recorded a budget deficit of 16.68 billion pounds ($20.4 billion) in February, much higher than expected by a Reuters poll of economists. Sentiment remained fragile, as investors grapple with bank stress that has mushroomed from weakness in regional U.S. banks to the humbling of a global lender in a matter of days. On Sunday the Federal Reserve, in coordination with central banks elsewhere, announced it would offer daily currency swaps to ensure there would be plenty of U.S. dollars to go around. A top European Union securities regulator said on Tuesday that reforms to tackle vulnerabilities in money market funds were urgently needed for the sector to cope better with economic shocks. The approval of International Monetary Fund financing for Sri Lanka sent the beaten-down Sri Lankan rupee about 5% higher against the dollar. The dollar rose against the yen after recording on Friday its biggest daily fall against the Japanese currency in more than two months.