Indian rupee hits near three-week low as Asian currencies drop on Fed, Iran war caution

MUMBAI: The Indian rupee fell to a near three-week low on Wednesday, tracking declines in Asian currencies as investors turned cautious ahead of remarks from the U.S. Federal Reserve chair and uncertainty over U.S.-Iran negotiations.

The rupee weakened 0.6% to end the session at 95.2475 per dollar, its worst one day fall since June 8.

Traders said likely central bank intervention shielded the rupee early in the session, before it weakened as dollar offers from state-run banks thinned.

“Stop losses being triggered on some intra-day short wagers amplified the move,” an FX salesperson at a foreign bank said.

Asian currencies were down by 0.1% to 0.5% as well while the dollar index nudged up to 101.4.

The dollar was boosted by higher Treasury yields, while fading prospects of a permanent U.S.-Iran peace deal kept concerns over inflation and Federal Reserve rate hikes elevated.

Indirect technical talks between the United States and Iran are underway in Doha, Reuters reported on Wednesday.

Later in the day, the focus will be on remarks from U.S. Fed Chair Kevin Warsh alongside the ADP national employment report.

“Given the absence of forward guidance from the Fed now, there is going to be intense focus on any comments from the new Fed chair,” ING said in a note.

Tepid fortunes

Despite a sharp fall in oil prices from their Iran war peak and measures to boost dollar inflows, analysts do not expect a meaningful recovery in the rupee over the next 12 months.

The central bank’s hefty forward dollar liabilities and tepidness in foreign portfolio inflows into local stocks are among the factors standing in the way of a stronger rupee down the line, analysts said.

Despite median expectations of the dollar inflow measures brining in about $50 billion, most analysts have not altered their rupee forecasts to reflect appreciation, per a Reuters poll.