The Indian rupee plunged against the dollar on Monday, marking its biggest daily decline in more than four months, as an upbeat US jobs report stoked fears of further rate hikes by the Federal Reserve, prompting analysts to reevaluate the prospect of further rate cuts this year. .
The rupee fell about 1% to 82.7250 to the dollar, its biggest percentage drop since September 22.
The rupee and other Asian currencies found few buyers after the US economy added more than half a million jobs last month, beating expectations and bolstering bets on maintaining a hawkish stance from the Fed.
“Friday’s data challenged the market narrative for rate cuts later this year on which January’s frenzy for risk assets…was partly built,” Societe Generale said. in a note.
The dollar index and Treasury yields, predictably, jumped on Friday. The dollar index rose further on Monday as the Thai baht paced losses among Asian currencies. The Thai currency had its worst day in more than two decades.
The robust U.S. labor market suggests a delayed cut in federal funds rates, Nomura said in a note.
“We maintain our forecast of a further March fed funds rate hike to a terminal rate of 4.75-5.0%, but we do not expect further cuts in 2023,” Nomura added.
The focus is now on the reaction of Fed officials. President Jerome Powell is scheduled to speak at the Economic Club in Washington, DC on Tuesday.
“Chair Powell will have a platform tomorrow … and will likely reiterate that multiple interest rate increases are appropriate,” SocGen said.
Rupee term premia fell, following the jump in Treasury yields, with the 1-year yield dropping around 12 basis points.