Indian rupee jumps against US dollar, bonds rally

Indian rupee jumped sharply against while sovereign bonds also rose after the US currency plunged on speculation that the Federal Reserve may slow the pace of its interest rate hikes. The rupee rose to 82.20 against the US dollar compared to its close on Tuesday of 82.7250 while 10-year bond yields fell to 7.376. Bond prices are inversely related to yields. The yield fell seven basis points to end at 7.4424% on Tuesday.

The dollar index was at about 109.75, hovering near its lowest level in over a month. The dollar's decline has been fuelled by wagers that the weakening US economy may prompt the Fed to reassess the size of its rate hikes from next month. Recent economic data showed that the Fed’s efforts to cool the economy seem to bearing some fruit as reading showed a contraction in services and manufacturing and fewer new home sales.

“Weak US data has raised prospects of a Fed pivot and this has resulted in risk on moves across assets. ECB rate decision and US Q3 preliminary GDP estimate will be in focus today," IFA Global said in a note.  

US Treasury yields declined with the 10-year yield now at 4.02%, about 30 basis points off its recent highs. 

"There is a near-term under current of ‘risk-on’ in equity markets globally triggered by expectations that the central banks will start moderating their rate hikes. The cue has come from Canada where their central bank raised rates only by 50 bps against expectations of 75 bps. Markets expect the Fed to moderate rate hikes starting December. Consequently the dollar index has fallen below 110 and the 10-year US bond yield has dipped to 4.03%. This might nudge FPIs to turn buyers imparting strength to the market. Nifty’s recent range of 17500-17800 looks set to be decisively broken on the upper end today. Financials, select autos and capital goods are well set to continue their recent rally," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

However, the spike in Brent crude above $95 is a concern, say analysts.  Oil gained further ground after touching the highest level in about two weeks after US Secretary of State Anthony Blinken said a deal with Iran would be unlikely to advance in the short term. Meanwhile, global oil prices rose, driven by record U.S. crude exports and a weaker dollar.
 

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