During Monday's trading session, the Indian Rupee breached the 83 mark against the US Dollar and reached an intraday low of 83.12. This level marked the lowest point since October of last year.
Looking at monthly performance, the Indian rupee has declined nearly 0.90% against the USD in August so far. This depreciation can be attributed to the strengthening of the US dollar index, driven by an uptick in US Treasury yields and selling by foreign institutional investors (FIIs).
The yield on the US 10-year Treasury note rose above the 4.20% mark in August, approaching the ten-month high of 4.33% touched in October last year. The rise in US bond yields in August came after the rating agency Fitch downgraded the United States' Long-Term Foreign-Currency Issuer Default Rating (IDR) to AA+ from AAA, in a move that came despite the resolution of the debt ceiling crisis two months ago.
The US dollar index, a measure of the dollar's strength against a basket of six major currencies, rose to a five-week high of 103 during Monday's trade.
Following two consecutive months of decline, the US dollar index exhibited a rebound, with a rally of 1.06% in August so far. Despite this recovery, it remains nearly 9.50% lower than its peak of 114, which was reached in September of the previous year.
Furthermore, the US annual inflation rate rose in July to 3.2% from 3% in June. This development led to expectations that the Federal Reserve would maintain higher interest rates for a longer period to combat inflation.
Additionally, foreign institutional investors (FIIs) turned net sellers in the capital markets on Friday, offloading shares worth ₹3,073.28 crore, according to exchange data.
"The spike in the dollar index to 103 and the rise in U.S. 10-year bond yields are negative for capital flows to emerging markets. The FPI sell figure of ₹3073 crores last Friday is in tune with these negative trends," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"In view of the strong dollar and high US bond yields, FPIs may continue to sell in India. Also, since the markets have rallied smartly during the last three months, some profit booking by FPIs would be rational and can be expected," he added.
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