INDIA RUPEE-Rupee drops as dollar firms up ahead of Fed decision; yuan slips

Credit: REUTERS/AMIT DAVE

By Anushka Trivedi

MUMBAI, Sept 21 (Reuters) - The Indian rupee weakened on Wednesday as the dollar remained firm in anticipation of a mega rate hike by the U.S. Federal Reserve, with the Chinese yuan's woes weighing further on Asia markets.

The rupee INR=IN eased to 79.8425 per dollar by 0456 GMT, compared to its previous close of 79.75. It has held a narrow 20 paisa range this week, ahead of the Fed meeting outcome.

Bouts of inflows have come through over the past two days, but given that India has a wide trade deficit and there is substantial dollar demand, the rupee is susceptible to weakness ahead of crucial events like the Fed policy meet, said a trader at a Mumbai-based bank.

As a host of global central banks meet this week, one should expect the Reserve Bank of India to lean against any depreciation pressure, he added.

Asian currencies and stocks declined across the board as risk sentiment was hit further by the yuan CNH=D3 trading at 7.05 per dollar for the first time since July 2020. EMRG/FRX

Weakness in the yuan has potential spillover effects for Asian economies as China is the top trade partner for most countries in the region.

Meanwhile, the dollar index USD= was steady at 110.3, hovering close to its two-decade high of 110.79 hit earlier this month. Short-term and long-term Treasury yields, both, hit multi-year highs overnight, brightening the greenback's appeal. FRX/

The Fed's decision will come at 1800 GMT, and markets have fully priced in a 75 basis point (bp) rate hike, with an 18% chance of a full percentage point increase and a forecast for rates to peak around 4.5% by March 2023.

Markets worry that the aggressive stance to tackle inflation taken by the Fed and other central banks could potentially squeeze global economic growth.

However, India's government is in no hurry to push inflation - now hovering near 7% - back to the central bank's 4% medium-term target, for fear that aggressive rate hikes could hurt growth, sources told Reuters.

(Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil)

((anushka.trivedi@thomsonreuters.com; Reuters Messaging: anushka.trivedi@thomsonreuters.com@reuters.net/Twitter: @anushkat96))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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