Indian rupee: Rupee falls on hawkish Fed outlook, forward premiums slide

The Indian rupee declined versus the dollar on Wednesday after an unexpected increase in U.S. inflation spurred bets of super-sized rate hikes in coming months.

The rupee closed at 79.44 per U.S. dollar, down from 79.1475 in the previous session.

The local unit had opened at 79.60, but managed to claw back from its fall, helped by Indian shares recouping a large part of their losses.

India‘s gauge, the BSE Sensex, ended down 0.4% after falling almost 2% during the session.

Meanwhile, rupee forward premiums tumbled to more than 10-year low, tracking the overnight jump in near-maturity U.S. Treasury yields.

The 1-year USD/INR implied yield dropped to near 2.80%.

Financial markets expect the Fed to deliver at least a 75 basis points rate hike next week.

Headline U.S. consumer prices unexpectedly rose in August on a month-on-month basis, while the core inflation rate rose 0.6%, twice of what economists polled by Reuters had predicted.

Futures are now pricing in a 1-in-3 chance that the Fed will raise rates by 100 bps next week. Prior to the inflation data, the debate among market participants was whether the Fed will deliver a 50 bps or 75 bps hike.

The dollar index and Treasury yields soared overnight and U.S. equities posted their biggest decline in over two years. Shares in Japan, Australia and South Korea were down up to 2.8%.

The Indian rupee’s losses, however, were the lowest in Asia. The Korean won led Asian currencies lower, plunging 1.3%.

“The rupee is being driven by its own fundamentals than what is happening to the dollar overseas,” said Madan Sabnavis, chief economist at

, pointing to the recent pickup in foreign equity inflows that have kept the rupee’s fall in check.


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