Speculation of more US rate hikes following comments to that effect by members of the Federal Reserve also contributed to mounting robustness in the dollar index, exacerbating the pressure on the rupee.
The rupee settled at 82.39 on Wednesday as against 82.21 on Tuesday. The domestic currency has shed 0.7% against the dollar since the beginning of last week as official negotiations seeking to permit the US to issue more debt have failed to yield results.
According to Invesco Fixed-Income’s senior portfolio manager Justin Mandeville, with negotiations in the US Congress being tenuous the timeframe for a quick resolution of the stalemate over debt celling seemed unlikely.
Weakness in the Chinese yuan – which dropped past key technical gauges on Wednesday – also weighed on the rupee. The performance of the Chinese currency often drives other Asian units. The yuan has suffered as economic momentum in the country has fallen short of expectations.
“The dollar index strengthened across the board, driven by higher US yields, mixed US data and hawkish remarks by Fed speakers. USD/CNH (dollar/yuan) pair crossed an important resistance of 7.00 levels. Rupee tends to weaken when the yuan sinks,” Kunal Sodhani, vice-president at Shinhan Bank said.
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