The Indian rupee plunged 61 paise to fall below the 83-mark
for the first time against the US dollar on Wednesday, October 19, 2022, amid
persistent foreign fund outflows and a firm dollar in the overseas markets.

Apart from this, soaring crude oil prices in the
international markets and risk-averse sentiment among investors weighed on the
domestic currency.

The local unit began strongly at 82.32 against the US
dollar at the interbank foreign exchange market but later lost all gains to
settle at an all-time low of 83.01 against the American currency, down 61 paise
over its previous close.

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The rupee fell 10 paise to settle at 82.40 against the
dollar in the previous session on Tuesday.

The dollar index, which measures the greenback’s strength
against a basket of six currencies, rose 0.31% to 112.48.

As the US dollar gains strength, other currencies continue
to witness sharp declines. The British pound slipped 0.6% to 1.1247. The
Japanese Yen fell as low as 149.48, its weakest since 1990, and moving closer
to the psychological 150 level.

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According to analysts, the Reserve Bank of India’s (RBI)
currency intervention is making the rupee less attractive for carrying traders.
Its intervention in the spot and forward markets has helped boost the 12-month
implied yield on the rupee, typically a reflection of interest rate
differential with the US to the lowest since 2011, decreasing its appeal.

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“Back home, the RBI’s currency intervention in a spot along
with a buy-sell swap to maintain the rupee liquidity has led to a sharp fall in
forwarding premiums to 2.50% from 2.82% trading a month ago. This makes the
rupee less attractive for carrying traders and sellers and keeps them at bay
also when the USD-INR trend remains on the upside. The USD-INR trend in the
pair remains on the upside, the firecracker can start busting again for the
rupee post-Diwali and the pair can set its move for another record high,”
CR Forex Advisors said in a note.

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Inflation is expected to increase after the minimum support
prices (MSP) for the winter crop were raised at a faster pace than last year,
including that of wheat which was up 5.5%.

Among the 10-year yields, German bonds rose 7 basis points,
US treasury yields 5 basis points and Indian bond yields surged 3 basis points.
The weakness came after the hotter-than-expected UK inflation figure raised
concerns that continuous price increases will prolong a recession in the
country.

Earlier, UK CPI rose 10.1% in September from 9.9% a month
ago, matching a 40-year high reached in July.

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Markets have already projected a full 100 basis points hike
each by the bank of England in November and December meetings and 75 bps for
the February meeting. The European Central Bank is expected to go for a 75 bps
hike in the upcoming.