MUMBAI: The Indian rupee logged its worst week since February as drastic shifts in US trade policy sparked volatility in global markets and weighed on risk assets, but also pummelled the dollar, which helped limit the losses.
The rupee closed out the week 0.9% weaker, though it ended up 0.7% to 86.04 per US dollar on Friday. Worsening sentiment on the dollar helped boost Asian currencies on Friday, with the offshore Chinese yuan also up 0.1% despite an escalation in the Sino-US trade war.
Beijing said it is raising tariffs on US goods to 125%, in response to US President Donald Trump’s 145% levy.
On the day, the dollar index was down 0.7% after touching a three-year low as trade policy shifts have ignited fears of a US recession and shaken confidence in US assets. Even though the US has paused “reciprocal” tariffs for all countries, excluding China, the dollar has lost out against the euro and safe-haven currencies such as the Japanese yen and the Swiss franc.
“In this environment it is hard to see any near-term revival in US dollar confidence,” MUFG Bank said in a note. The dollar’s worsening fortunes have helped the rupee, as traders exited short bets on the local unit. While the currency touched a peak of 85.96 on the day, dollar demand from importers ate into some of the gains.
Meanwhile, dollar-rupee forward premiums fell on interbank forward dollar sales and a slight reduction of bets that the Federal Reserve could cut interest rates as soon as May. The 1-year implied yield was down 8 basis points at 2.25%.
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