The rupee bounced back by 100 paise with gaining the best performance in four years . It closed at 80.81 against the dollar after the greenback weakened following lesser-than-anticipated inflation in the US. With Friday’s gain, the domestic currency has appreciated 2% in the week and thus has gained the best performance. The rupee opened 110 paise higher at 80.71 — the biggest gap opening in years.

The rise of US inflation-

Inflation has been a turning point in US with 7.7% as against expectations of 7.9%, analysts expect the US Fed to hike rates by 25 or 50 basis points (100bps = 1 percentage point) in December as against the 75bps rate moves in recent months. Rupee has touched as high as 80.58 before closing at 80.81, 100 paise stronger .

Other emerging market Currencies –

Since the dollar index plunged , other market currencies gained . The South Korean won closed 4.5% stronger, its best performance since 2009. Other emerging market currencies, including the Thai baht, Malaysian ringitt, Phillipine peso and Indonesian rupiah, gained more than the rupee. The Chinese yuan also gained 0.9% and reports of easing of Covid restrictions boosted markets.

Replenishment of reserves of RBI –

The gap opening of 110 paise in the relation with dollar was huge. This kind of gap opening was not seen even during the peak of the Russia-Ukraine conflict. It is clear pointer that the dollar was sold heavily in the offshore market , said K N Dey of United Financial Consultants. Dealers expect that the RBI would step in to stem the appreciation, which will also help to replenish the decline in reserves. RBI data shows that foreign exchange reserves, declining to $530 billion in the week ended November 4 from $531.1 billion as of October 28. Reserves were at $632.7 billion at the beginning of this year.

Investors dilemma of balance Sheet Management –

Us markets being closed today for the veterans Day , there will be no inflows on Monday. Sinceany investors are into balance sheet management at the end of the year, it is extremely rare to see large inflows . The rupee’s gains are also likely to be capped because of the firming up of oil prices.

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