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Rupee surrenders half of last week’s rally, premiums plunge

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By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee inched lower on Friday, extending its losses for the week, while rupee premiums slid to their lowest level in more than a decade.

The rupee declined to 81.6850 from 81.65 in the previous session, taking its losses for the week to 1.1%. The rupee fell each day this week, except for a slight uptick on Tuesday.

It was very different for the rupee last week when the currency surged about 2%, helped by the U.S. inflation data.

The rupee and other Asian currencies struggled due to comments by Federal Reserve officials that were broadly consistent in the message that U.S. rates need to rise further.

One official said on Thursday that rates may need to rise to 5%-7% to bring down inflation. The Fed policy rate is currently at 3.75-4.00%.

Near-maturity Treasury yields rose this week with the 2-year back above 4.50%. Asian currencies posted declines between 0.5% and 2% week-on-week.

Cash dollar demand was another reason traders cited for the rupee’s struggles this week. The one-day USD/INR cash-swap rate fell to 0.36 paisa at one point, likely on account of the cash dollar demand, traders said.

The fall in the cash-swap rate pulled rupee premiums lower. The unwinding of onshore and offshore arbitrage positions added to the down move on premiums.

The 1-year USD/INR implied yield declined to near 2.20%, the lowest level in more than 10 years.

The fall in the premiums is likely to put pressure on the rupee, said Arnob Biswas, head FX research at SMC Global Securities.

The fall in premiums lowers the cost of hedging forward dollar liabilities.

(Reporting by Nimesh Vora; Editing by Savio D’Souza)

Disclaimer: This report is auto generated from the Reuters news service. ThePrint holds no responsibilty for its content.

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