Rupee Hits Record Low Past 86/USD Amid Strong U.S. Jobs Data
The Indian rupee plunged below 86 against the U.S. dollar for the first time in history, as a strong U.S. jobs report further solidified expectations that the Federal Reserve would not aggressively cut interest rates this year. The rupee opened at an all-time low of 86.2050, a far cry from its previous session low of 85.9650.
The U.S. economy added 256,000 jobs in December as economists expected only about 160,000, with the unemployment rate falling unexpectedly to 4.1%. Job growth this robust will reinforce in investors' views that the Fed is unlikely to cut rates again anytime soon; cuts were enacted earlier in 2023.
Market analysts say the data would add further justification to hold bearish positions on the rupee for traders who already are. Some feel that the rupee is at levels where negative factors are already priced in and a correction is due.
According to Morgan Stanley, the U.S. jobs report sharply cuts down the concerns on the risks within the labor market, and puts back the spotlight on inflation as a determinant for future Federal Reserve actions. The bank predicts that the report cuts down the prospects of immediate Fed rate cuts as interest rate futures now suggest just one rate cut this year.
The rupee, on the other hand, had a very rough day and slipped by 18 paise to close at 86.04 against the U.S. dollar. In contrast, the dollar index measuring the strength of the greenback against six major currencies went up by 0.22% to 109.72-its highest point in over two years. Meanwhile, the yield on the 10-year U.S. bond remained at high levels at 4.76%, its second-highest in October 2023.
