The Indian rupee (symbol: ₹; code: INR) is the official currency of India. Enhancing risk feeling aided gains in the Indian rupee that spurted by 42 paise to a nearly two-week high of 76.20 against the US dollar on Wednesday. Positive domestic equities and Asian currencies ahead of the US Federal rate hike decision, easing crude oil prices and weak dollar overseas pushed rupee higher.
Changes in the federal funds rate can impact the U.S. dollar. When the Federal Reserve increases the federal funds rate, it typically increases interest rates throughout the economy. The higher yields attract investment capital from investors abroad seeking higher returns on bonds and interest-rate products. At the interbank forex market, the local unit opened at 76.40 against the greenback and witnessed an intra-day high of 76.19 and a low of 76.44. The rupee quoted at 76.20, registering a rise of 42 paise over its previous close of 76.62. Meanwhile, the US dollar came under pressure, lingering near 98.60 levels ahead of the FOMC event later in the global day.
Global investors sell their investments denominated in their local currencies in exchange for U.S. dollar-denominated investments. The result is a stronger exchange rate in favor of the U.S. dollar.
The Fed, through the FOMC or Federal Open Market Committee, adjusts rates depending on the economy's needs. If the FOMC believes the economy is growing too quickly, and it's likely that inflation or rising prices might occur, the FOMC will increase the fed funds rate. Conversely, if the FOMC believes that the economy is struggling or might dip into a recession, the FOMC would lower the fed funds rate. Higher rates tend to slow lending and the economy, while lower rates tend to spur lending and economic growth.
Leave a Reply