The rupee on Tuesday dropped to a one week low against the dollar with the euro seeing a record fall against the dollar and in general tracking weakness in all Asian equity indices. Apart from one day last week, when the rupee had drifted down to Rs 47.70, the closing rate on Tuesday of Rs 47.16, was the lowest in eight months. The rupee closed at 47.16 as against 46.37 on Monday, hitting a low of 47.21 and high of 46.51.
The Indian currency has been extremely volatile hurting both exporters and importers. At the start of the year, the dollar was fetching Rs 46.32, by mid-April it had strengthened to Rs 44.40 and by mid-May dropped to Rs 47.70. It recovered to Rs 46.31 but has again slipped. So far in 2010, however, the rupee has strengthened by 1.8% against the dollar on the back of 4.8% gain last year.
Most of the weakness has been on account of the weak euro. According to Bloomberg, the euro extended its longest monthly decline versus the dollar in 10 years amid concern mounting writedowns at Europe?s banks and efforts to reduce budget deficits will hamper the region?s recovery.
The decline erased 50% of the euro?s rally from its October 2000 low to the July 2008 high. The European Central Bank said there may be more bank losses as the credit crisis spreads. Australia?s dollar weakened after the nation?s central bank kept borrowing costs unchanged amid concern slowing manufacturing growth in China will temper demand for its exports. The euro had fallen to $1.2123 on early Tuesday from $1.2306 on Monday, and weakened to $1.2111, the lowest level since April 14, 2006. Europe?s currency dropped 7.4% against the dollar in May, its sixth straight monthly decline.
Says Hitendra Dave, head of global markets at HSBC, ?The movement of the rupee will depend on trends in the global markets. The rupee has been rather volatile and we are waiting for the international markets to stabilise. Only when that happens can we expect the rupee to see some signs of strengthening.?
Adds Priyanka Chakravarty, FX strategist, Standard Chartered Bank, ?We could see more depreciation of rupee if globally things do not improve and it may breach 47.75.?