By Anushka Trivedi
MUMBAI (Reuters) – The Indian rupee eased against the dollar on Tuesday as Treasury yields rose on increasing bets of a Federal Reserve rate hike following more robust U.S. data.
The rupee finished at 82.04 per dollar, compared with 81.9725 in the previous session.
The dollar index gave up gains late in the session as the pound jumped on strong labour data, but the rupee failed to capitalise, finding strong resistance at the 82-level.
It is unclear whether there was one large buyer as private and public sector banks, both, were seen bidding for dollars, said a trader.
“We still think the rupee should strengthen in the coming days, but price action over the past few days has suggested overcoming the 81.80-81.50 zone will be difficult,” the trader added.
Meanwhile, Indian equities deepened losses to weigh on sentiment further, after a report that the country was possibly looking to overhaul its direct tax laws, including increases in capital gains taxes for top-income earners.
However, the tone of the market was mostly set by Fed funds futures indicating another 25 basis point hike being almost certain at next month’s meeting after U.S. data overnight.
The dollar jumped the most in almost a month overnight, while two-year and 10-year Treasury bond yields hit multi-week highs.
Data showed confidence among U.S. single-family homebuilders improved for a fourth straight month in April, while the New York manufacturing index increased for the first time in five months as measures of new orders and shipments surged.
“Investors have been betting that the Fed might cut rates this year as inflation cools. However, we think these expectations might be premature,” wrote HDFC Bank economists.
The hike in May could be the Fed’s last, and so U.S. bond yields should be close to their peak and, dollar downtrend should continue, they added.
(Reporting by Anushka Trivedi; Editing by Sohini Goswami)
