Rupee faces pressure from surge in US yields, strengthening dollar

On Friday, the rupee is set to grapple with a spike in US Treasury yields and a dollar rally prompted by hawkish remarks from US Federal Reserve officials, including Chair Jerome Powell. 

Non-deliverable forwards suggest the rupee may open at approximately 83.27-83.29 against the US dollar, compared to 83.28 in the previous session and near its lifetime low of 83.2950.

While the rise in US yields is expected to impact the rupee, a forex trader noted that the currency did not react to the previous decline in US yields and might not respond to the reversal at its current level.

The 10-year US Treasury yield surged in the New York session on Thursday, driven by a weaker-than-expected 30-year US bond auction and comments from Fed Chair Powell. The 2-year yield rose to 5.04 per cent, and the dollar index approached the 106 handle.

Powell emphasised the Fed's commitment to achieving a sufficiently restrictive monetary policy to bring inflation down to 2 per cent over time. Other Fed speakers echoed this sentiment, signalling a dedication to maintaining a tightening stance to avoid market expectations of rate cuts.

The impact was felt across Asian currencies, leading to mostly lower shares after a retreat in US equities. The upcoming focal point is the US inflation data next week, adding further uncertainty to currency and market dynamics.

(With Reuters Inputs)