Rupee gains vs dollar as weak US GDP data softens Fed rate hike view

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The rupee gained versus the dollar on Friday as a weak US GDP reading deepened recessionary fears in the country and prompted investors to scale back expectations of rate hikes by the Federal Reserve.



At 09.50 am India time, the rupee was trading at 79.36 per US dollar against Thursday’s close of 79.76.


Data released after Indian trading hours on Thursday showed that the US economy contracted 0.9 per cent in the second quarter of 2022, marking the second consecutive quarter of a contraction.

Also Read: US Fed rate hike will intensify market risks for Asia’s central banks


The US GDP data came a day after the Federal Reserve raised interest rates by 75 basis points, taking the total tally of rate hikes in 2022 to 225 basis points.


While the Fed has signaled more rate hikes to tame inflation in the US, the concerns over slowing growth have increased speculation that the central bank will slow down on rate hikes going ahead.


“The rupee has opened stronger today after the release of the second quarter (US) GDP which contracted at a 0.9 percent annualised rate resulting in 2 back to back quarters of contraction which can be loosely defined as a recession,” said a currency trader from Mecklai Financial Services.


“The soft GDP report has reduced the odds of aggressive fed rate hikes leading to a pullback in US dollar and treasury yields.”


The aggressive pace of monetary tightening by the Fed has led to an exodus of overseas funds from Indian equities, exerting considerable downward pressure on the rupee this month. Earlier in July, the rupee weakened to a lifetime low of 80.06 to a dollar.


“The recent weakness in US dollar post-Fed has helped the rupee to reverse some losses from 80.00 levels,” CR Forex Advisors said in a note.


“As the range of 79.70-80.10 has been taken out, we shall see a further move of 50 paise on the downside, and the pair can come close to 79.20 levels,” the firm said.

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