Strong dollar drags down rupee, other currencies to new lows

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New Delhi, September 26

The strengthening of the US dollar following the Fed’s third aggressive interest rate hike last week pushed the Indian rupee to a lifetime low in tandem with other international currencies, especially the pound.

Dollar index rises to 20-year high

• The British Sterling also fell to an all-time low against the dollar before recovering on Monday
• The dollar index rose to a 20-year-high of 114.58 at one time before correcting to 113.448
• The US Fed’s recent hike of interest rates has led to investors pulling their money out of other markets to invest in the US

The rupee plunged 58 paise to close at an all-time low of 81.67 against the US dollar on Monday, forcing the Reserve Bank of India to sell the greenback to stem the slide for the third straight session.

The British Sterling also fell to an all-time low against the dollar before recovering on Monday, though part of the decline was due to tax cuts announced by the new Liz Truss government.

The primary reason was the strengthening of the dollar. The dollar index, which measures its strength against six currencies, rose to a 20-year-high of 114.58 at one time before correcting to 113.448. The US Federal Reserve’s hike of interest rates by 75 basis points for a third time in a row has led to investors pulling their money out of other markets to invest in America.

As a result, foreign institutional investors offloaded shares worth nearly Rs 3,000 crore on Friday and it was anticipated that a similar trend prevailed worldwide on Monday, pushing all markets in the red. The two-year US Treasury yield was at 4.2%, its highest level since 2007.

Indian benchmark indices fell sharply with Sensex down by 953.70 points and Nifty by 311.05 points. A total of 2,925 shares declined, 660 shares advanced, and 122 remained unchanged.

Elsewhere in Asia, markets in Seoul, Tokyo, Shanghai and Hong Kong ended sharply lower. European bourses too were trading in the red in mid-session deals. Though the dollar had strengthened and Treasury yield was up, US markets also ended in the negative territory on Friday.

The silver lining in the strengthening of the dollar was that Brent crude slipped 0.75% to $85.50 per barrel and gold too touched a recent low.

The RBI would be hoping to correct the situation as next week it is expected to announce a hike in interest rates by 50 basis points, according to market analysts.