The rupee on Tuesday dropped by 22 paise to close at ₹65.50 against the resurgent dollar amid rising expectations of a rate hike by the U.S. Federal Reserve.
At the interbank foreign exchange market, the rupee opened with lower at ₹65.65 against last weekend close of ₹65.28 on heavy bouts of dollar demand, despite strong equities.
The domestic currency regained some lost ground at the fag-end to settle at ₹65.50, showing a sharp fall of 22 paise, or 0.34%.
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Forex trading sentiment turned little shaky ahead of the RBI policy meet outcome on Wednesday, currency traders said. The apex bank is expected to keep its policy rate unchanged despite a sharp slowdown in economic growth and sudden revival in inflation.
Increased demand for the dollar from importers and corporates along with massive capital outflows largely contributed to the rupee’s weakness, traders said. Even the persistent rise in equity market failed to restrict the fall, a forex dealer added.
The U.S. dollar remained firm in Asian trade, touching the highest level in a month following strong manufacturing data and expectations of potential implementation of long-awaited tax reform by the Trump administration later in the year.
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Foreign investors continued to be in exit mode and pulled out over ₹11,000 crore from Indian equities in September against the back drop of heightened geo-political worries amid concerns over corporate earnings growth.
In the meantime, domestic equities continued to their stellar run for the third straight session, with the flagship Sensex zooming over 213 points to end at 31,497.38, while Nifty surged 71 points to 9,859.50.
The RBI, meanwhile, fixed the reference rate for the dollar at ₹65.5529 and for the euro at ₹76.7756.
In cross-currency trades, the rupee continued to rally against the pound sterling to end at ₹86.81 from ₹87.39 per pound and hardened against the Japanese yen to finish at ₹57.96 per 100 yens from ₹58.03.
It also surged ahead against the Euro to conclude at ₹76.99 from ₹77.10 last Friday.
In forward market, premium for dollar recovered owing to mild pressure from corporates.
The benchmark six-month premium payable in March edged higher to 131.50-133.50 paise from 129.75-131.75 paise and the far forward August 2018 contract also rose to 269.50-271.50 paise from 266.50-268.50 paise.
On the international energy front, crude prices traded almost flat after a steep overnight plunge.