Currency

Rupee slips below 72 per dollar: Key reasons behind the fall

Updated : August 23, 2019 12:19 PM IST

The Indian rupee on Friday slumped to an eight-month low against the US dollar dragged by losses in stock markets across the world and Asian currencies such as Chinese yuan again the greenback. The rupee plunged to 72.04 per dollar, its weakest level since December 14, 2018. The home currency opened at 71.95, down 14 paisa from its previous close of 71.81 a dollar. The Indian currency has declined 4.6 percent in August and has slumped over 3 percent so far in 2019. Here are the key reasons behind the weakness in the rupee:

US Dollar: The US currency edged higher versus the yen on hopes a speech by US Federal Reserve Chairman Jerome Powell will reinforce that the US central bank has not entered a prolonged monetary easing cycle. The dollar index against a basket of six major currencies rose 0.2 percent to 98.344 and was headed for a second weekly gain.

Indian Stock Markets: Benchmark indices BSE Sensex and NSE’s Nifty 50 plunged 1 percent in the morning trade. However, they soon recovered to trade little changed. Intraday, the Nifty fell 104 points, or 0.9 percent, to 10,637.15. The Sensex slumped 370.58 points, or 1.01 percent, to 36,102.35.

FII outflows: Foreign institutional investors remained net sellers in the capital markets, pulling out Rs 990 crore on Thursday, according to provisional data on the NSE. FPI selloffs triggered by a proposal in the Budget 2019 that hiked a surcharge of the income tax of FPIs. The selling continues despite market regulator Sebi easing KYC requirements for the investors and permitted them to carry out off-market transfer of securities.

Chinese Yuan: The yuan fell for a seventh straight session on Friday and hit an over 11-year low over escalating trade dispute with the United States. The yuan has now depreciated around 2.8 percent to the US dollar since President Donald Trump said on August 1 he would impose tariffs on Chinese goods. Prior to the market opening, the People's Bank of China (PBOC) lowered its official yuan midpoint to a fresh 11-year low of 7.0572 per dollar.

Global markets: Asian shares struggled as uncertainty over how much further the US Federal Reserve would cut interest rates added to investors' worries over slowing global growth. Pan-European Euro Stoxx 50 futures gained 0.7 percent in late Asian trade, indicating European cash share markets will open higher on Friday. MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.3 percent higher. Japan's benchmark Nikkei advanced 0.4 percent and Australian stocks added 0.3 percent. The Shanghai Composite and the blue-chip were up 0.3 percent and 0.5 percent, respectively, while Hong Kong's Hang Seng gained 0.5 percent.

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