The rupee strengthened early on Monday, maintaining its upward trend from the previous session, despite a spike in U.S. bond yields as investors reduced their bets on a rate cut by the US Federal Reserve in June.
As per a foreign exchange trader at a state-run bank, broad-based dollar sales from local and foreign banks helped the rupee on Monday. The currency should trade with a slight upward bias, the trader added.
The rupee was at 83.26 to the dollar as of 9:45 a.m. IST, up slightly from 83.2950 in the previous session, when the rupee rose nearly 0.2%, recovering from Thursday’s record low of 83.4550.
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Additionally, a moderation in crude oil prices on easing tensions in west Asia is also likely to assist the rupee. Brent Crude Futures are trading lower below the $90 per barrel mark. The dollar index was little changed at 104.3 while Asian currencies were mixed.
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Treasury yields increased following data that revealed US. economy added more jobs than anticipated in March, prompting a pullback in odds of a rate cut at the Fed’s June meeting. The yield on the 10-year U.S. Treasury increased to 4.41% from a 7 basis point (bps) increase on Friday. A week ago, the odds of a June rate drop were roughly 57%; now, they are less than 50%, according to CME’s FedWatch tool.
Meanwhile, dollar-rupee forward premiums declined, with the 1-year implied yield down 2 bps at 1.65%, pressured by the rise in U.S. bond yields.
(with inputs from Reuters)