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Rupee hits new low, US inflation sparks fear of Fed rate hike

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The rupee weakened to a new low against the greenback for a fourth straight session on Thursday as markets expected the Federal Reserve to aggressively hike rates after data yesterday showed US inflation at a forty-year high in June.



The rupee was trading at 79.80 against the US dollar at 10.10am IST, compared to its close of 79.64 on Wednesday. “The range for the day could be between 79.50 to 80.00 levels. If the big figure 80 levels are broken, move towards 81 will be sharp and soon,” said Amit Pabari, managing director at CR Forex Advisors, in a note.


Data released after Indian trading hours on Wednesday showed that US consumer price index inflation climbed to 9.1 per cent in June, compared to 8.6 per cent a month ago. A Reuters poll had pegged the rise in inflation in June at 8.8 per cent.


The inflation data has stoked speculation that the Federal Reserve will hike interest rates by 100 basis points at its policy meeting later this month.


The earlier expectation was of the Fed raising rates by 75 bps. The US central bank has already raised interest rates by 150 basis points so far in 2022.


“The Fed Reserve is seen mounting up its battle with 40-year high inflation with a jumbo 100 bps rate hike or a minimum of 75 bps this month,” CR Forex Advisors wrote.


Higher US interest rates typically lead to global capital flowing out of emerging markets such as India as investors prefer higher returns from the world’s largest economy.


Investors have flocked for the safety of the US dollar as the protracted war in Ukraine and the Fed’s aggressive rate hike plans have sparked fears of a global economic downturn.


The US dollar index, which measures the currency against six rival currencies, was last at 108.29, a twenty-year high.


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