The rupee fell 43 paise to an all-time low of 81.52 against the US dollar on Monday, as the strengthening of the US dollar and risk-averse investor mood weighed on the domestic currency.

Furthermore, the escalation of geopolitical concerns as a result of the Russia-Ukraine war, a negative trend in domestic stocks, major foreign capital outflows, and interest rate hikes by central banks across the world dampened investor confidence.

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Investors’ preference for safe-haven investments over risky ones due to tighter policy rates and recession worries has made the dollar stronger.

On September 21, the US Federal Reserve hiked interest rates by 75 basis points (bps) to 3%-3.25%, signalling a total of 125 bps in rate rises in 2022. So far in 2022, the Fed has hiked rates by 300 basis points.

The Bank of England increased its base rate by 50 basis points to a 14-year high of 2.25%. The central bank raised interest rates for the seventh time in a row, indicating that the UK is already in a recession.

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The rupee opened at 81.47 versus the US dollar on the interbank foreign exchange, then slipped to 81.52, a drop of 43 paise from its previous close.

On Monday, the sterling also fell to a record low. At one time, the pound fell nearly 5% to $1.0327, breaking through 1985 lows.

The Reserve Bank of India (RBI) reportedly sold dollars on Friday after the Indian rupee hit a historic low of 81.2250. 

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Investors are looking for new clues from the RBI’s upcoming monetary policy decision. The next three-day monetary policy meeting will be conducted on September 28-30.

“The Indian rupee is likely to remain weaker as investors expect that the US Fed will continue to hike interest rates aggressively to cool inflation”, said Sriram Iyer, Senior Research Analyst at Reliance Securities.

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“Focus now shifts to RBI’s meeting this week, with its decision due on Friday. We expect RBI to hike rates by 50 bps to cool stubbornly high inflation and prevent the currency from weakening further,” he added.

The 2-year US Treasury yield was at 4.2%, its highest level since October 12, 2007, while the dollar index, which compares the dollar to a basket of six major currencies including the sterling, the euro, and the yen, hit 114.58 for the first time since May 2002 before falling to 113.73.

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In other currency markets, the Australian dollar fell to $0.6487, its lowest level since May 2020, while the Canadian dollar fell to C$1.3625 per greenback, its lowest level since July 2020. According to Reuters statistics, China’s offshore yuan fell to a new low of 7.1630 per dollar, the lowest since May 2020.

The Sensex was trading 797.73 points, or 1.37%, lower at 57,301.19 points, while the Nifty slid 260.80 points, or 1.51%, to 17,066.55.

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Foreign institutional investors (FIIs) have sold shares worth a net Rs 2,899.68 crore, whereas domestic institutional investors (DIIs) purchased shares worth a net Rs 299.10 crore on September 23, as per provisional data available on the NSE.

Brent crude futures dropped 0.58% to USD 85.65 a barrel. Meanwhile, the country’s foreign reserves fell by USD 5.219 billion for the week ended September 16 to USD 545.652 billion.