The Indian rupee plunged against the dollar on Monday, marking its biggest daily decline in more than four months, as an upbeat U.S. jobs report fanned fears of more rate increases by the Federal Reserve, prompting analysts to reassess the prospect of more rate cuts this year.
The rupee fell about 1% to 82.7250 per dollar, its biggest percentage fall since September 22.
The rupee and other Asian currencies found few buyers after the U.S. economy added more than half a million jobs last month, blowing past expectations and boosting bets that the Fed would maintain a hawkish stance.
“The data on Friday challenged the market narrative for rate cuts later this year on which the January frenzy for risk assets… was partly built,” Societe Generale said in a note.
The dollar index and Treasury yields, expectedly, surged on Friday. The dollar index inched up further on Monday while the Thai baht paced losses among Asian currencies. The Thai currency suffered its worst day in more than two decades.
The robust U.S. labour market suggests a delayed Fed funds rate cut, Nomura said in a note.
“We maintain our forecast of one more Fed Funds rate hike in March to a 4.75-5.0% terminal rate, but no longer expect cuts in 2023,” Nomura added.
The focus now shifts to how Fed officials respond. Chair Jerome Powell is scheduled to speak at the Economic Club of Washington, D.C. on Tuesday.
“Chair Powell will have a platform tomorrow… and is likely to repeat that multiple increases in interest rates are appropriate,” SocGen said.
The rupee forward premiums tumbled, tracking the jump in Treasury yields with the 1-year yield falling about 12 basis points.