Unabated foreign funds selling in the domestic market and the strength of the dollar against some major currencies took a heavy toll on Indian rupee. The Indian currency weakened to a record low of 78. 39 to the dollar. At the same time, led by strong selling in RIL, the sensex lost 710 points to close at 51,823 as investors turned cautious ahead of the US Federal Reserve chief ’s testimony to the Congress.
Positive domestic equities and a weak American currency overseas supported the local unit, forex dealers said.
According to Sriram Iyer, senior research analyst at Reliance Securities, the rupee remained weak for an 8th straight week on growing concerns that aggressive monetary policy tightening could raise the risk of a global economic slowdown. “The rupee has weakened over the last few sessions after FPI remained net sellers in the domestic equity and debt markets,” Iyer said
The forward premium on rupee, which reflects interest rate differentials between India and US markets, has been falling. A low forward premium is not good for the spot exchange rate as it pre- sents an opportunity to those betting against the currency. “The decline in forward premia is because money market rates in the US have soared. This is purely because of the narrowing gap between Indian and US interest rates and does not mean that demand for dollar has declined in the forward market,” said K N Dey of United Financial Consultants.