Hitting yet another low, the Indian rupee fell by 46 paise to 81.55 in early trade on Monday. The decline is said to be due to a sharp uptick in the dollar index amid a hawkish Fed outlook and sell-off in pound on tax cut announcements. The two-year US Treasury yield was at 4.2 per cent, its highest level since October 12, 2007, said IANS. The dollar index, which gauges the greenback`s strength against a basket of six currencies, advanced to 114.58, before easing to 113.513 it said.
“The dollar index above 113 and the US 10-year yield at 3.73 % is likely to aggravate FPI outflows which have been gathering momentum during the last 3 days. The probability of a global recession is also increasing since the Fed continues to be ultra-hawkish,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
As the Indian currency continues to decline, Zee Business Managing Editor Anil Singhvi speaks about reasons behind its weakness, how it affects economy and correlation with the dollar index.
Weak or strong rupee: What is more beneficial for economy
Responding to this question, Zee Business Managing Editor said it is relative. The economy can benefit in both cases, but since India is a net importer, a strong rupee augurs well for the domestic economy. We import more and export less, said Singhvi. He said as all our bills and debts are to be settled in dollars, the strength in the rupee helps us more.
What is the dollar index and how is it related to the rupee?
Anil Singhvi said there is no direct connection as the Indian rupee is not part of the six-currencies index. He said the index comprises the European Unions’ euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The index measures the collective movement of these currencies against the US dollar. Though Indian rupee is not part of the index, but it helps us understand movement of the dollar against these currencies and determine the Indian currency’s movement going forward. ” There is no direct connection of rupee with the dollar index, however, there is a perfect indirect connection,” he adds.
महंगा डॉलर, रुपया ‘चिल्लर’#Dollar के सामने रुपया धड़ाम !
कमजोर #Rupee का क्या है असर?
गिरते रुपए का आपकी जेब पर असर
देखिए खास पेशकश ‘#RupeeKiPathshala‘ अनिल सिंघवी के साथ।#AnilSinghvi_ #RupeeVsDollar #RupeeFall@AnilSinghvi_ @deepdbhandari https://t.co/qhpbvuNXfo
— Zee Business (@ZeeBusiness) September 26, 2022
Why is the currency market the first to see the impact of any major global development?
Singhvi said one of the main reasons is that the currency market is the most tradable asset. “We are under the wrong impression that equity market has maximum liquidity. The equity market stands nowhere as compared to the currency market when it comes to liquidity. Currency has the most liquidity and is the most tradable asset across the world over. Also, it has 24/7 utility,” he said, adding that it is only understandable that this market is the first to react to any major global update.
Meanwhile, The dollar index, which gauges the greenback`s strength against a basket of six currencies, advanced to 114.58, before easing to 113.513.