Rupee plunges most in 6 months on spike in US dollar demand

Aug 07 2014, 07:56 IST
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SummaryRupee fell 65 paise, the most in 6 months, as demand for dollars after data signalled US economy is improving.

The rupee on Wednesday fell 65 paise, the most in six months, as demand for dollars after data signalled the US economy is improving amidst dollar outflows from the domestic equity and debt markets.

The rupee closed at 61.49/50 per dollar compared to 60.84/85 on Tuesday, a decline of 1.06 per cent on the day, its biggest single-day fall since January 24 and its second-biggest fall so far in 2014.

The Sensex plunged by 242.74 points, or 0.94 per cent, at 25,665.27 along with other Asian stocks which dropped following a sharp fall on Wall Street over fears of a market correction and concerns that the conflict in Ukraine could escalate. The dollar rose to an 11-month high against a basket of major currencies, boosted by a move by investors away from currencies seen as higher-risk. Long considered thought to be underperforming, the dollar has gained more than 2 per cent against a basket of major currencies since early July. It climbed to an 11-month peak of 81.716 on Wednesday. Data on Tuesday showed US services sector activity reached an 8-year high last month and factory orders surged in June, bolstering expectations of solid economic growth in the third quarter.

The BSE Sensex index, which rose over 427 points in previous two sessions, started the day on a negative note and continued to decline as selling in blue-chips weighed. Banking counters, including SBI, ICICI Bank, Axis Bank, HDFC Bank, retreated largely on profit-booking at prevailing levels and worries that a sell-off in government bonds would hit portfolio value of their debt holdings.

Pramit Brahmbhatt, CEO, Veracity Group, said: “The rupee depreciated for the first time in this week and broke all the immediate supports. It lost over 1 per cent as corporate dollar demand was seen in the market which forced the rupee to fall. Local equities also traded weak and ended the day on a negative note which further dented the movement of rupee.”

Foreign funds have sold $363.48 million worth equities and $440.15 million worth of debt so far this month, bringing down total inflows so far this year to $25.60 billion. The sales come on the back of weaker global markets, with risk assets hit on Wednesday on reports of a build-up of Russian troops near the border with Ukraine.

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