Rupee falls as strong US jobs data rekindles fear of aggressive Fed hikes

The Indian rupee weakened sharply versus the dollar on Monday as a stronger-than-expected US jobs report rekindled concerns over aggressive rate hikes by the Federal Reserve, dealers said.

At 10:00 am IST, the rupee was trading at 79.54 per dollar as against 79.25 per dollar at the previous close.

Data released after Indian trading hours on Friday showed that the US economy added 528,000 jobs in the previous month, with the unemployment rate falling to a fifty-year low.

With economic growth in the US showing firm momentum, the Federal Reserve is likely to opt for steep rate increases in order to rein in 40-year high inflation in the world’s largest economy.

The US dollar index, which measures the US currency against six rival pairs, was last at 106.58. The index was at 105.88 at 3:30 pm on Friday.

The Federal Reserve has already raised interest rates by 225 basis points since March 2020. Recent sets of weak US economic data had led to speculation of the Fed slowing down the pace of rate hikes in the coming months.

The jobs data, however, has led to a reversal of that view, dealers said.

“The Indian Rupee opened 21 paise weaker at 79.45 (previous close of 79.24) as dollar index which tracks the greenback against a basket of its peer trading around 106.7 levels after nonfarm payrolls came better than expected (528k vs 250k expected) and a decrease in the unemployment rate to 3.5 per cent in June,” currency traders from Mecklai Financial Services wrote.

“We think that these figures will provide the Fed the comfort it needs to effectively continue its fight against inflation. US 2year yield and 10year yield is at 3.21 and 2.81 respectively,” the firm said.