Rupee tumbles on capital flight, hits 3-mth low of 65.04

The rupee took another beating after a brief solace and plunged by a staggering 28 paise to end at a new three-month low of 65.04 against the US dollar even as importers rushed to cover unhedged positions amid fears over an imminent Fed rate hike.

This is the lowest closing of the Indian currency since November 20 last year.

Forex market sentiment was impacted after the FOMC minutes of the latest policy meet cemented expectations that the Fed will hike rates under its new chief Jerome Powell next month and showed more confidence on the economic outlook and increasingly optimistic on reaching their 2% inflation target.

Mounting concerns over a multiple interest rate increases from the Federal Reserve this year and also overrun by extremely bullish dollar undertone, panic-stricken importers rushed to cover their overseas liabilities as the local unit turned highly volatile in the last few trading sessions.

The rupee opened with a sharp gap-down at 65.02 against Wednesday's close of 64.76 following heavy dollar buying by commercial banks and corporates in an extremely volatile trading at the interbank foreign exchange market.

It fell further to hit a fresh intra-day low of 65.11 in late afternoon deals due to heavy import covering before finally concluding the day at 65.04, showing a sharp loss of 28 paise, or 0.43%.

The RBI, meanwhile, fixed the reference rate for the dollar at 65.0458 and for the euro at 79.8307.

Heavy dollar demand to meet payment liabilities and overseas commitments in the face of import finance restrictions after the alleged Punjab National Bank's stunning $1.77 bn fraud announcement also impacted the rupee trade, a forex dealer said.

The demand for dollars far exceeded supply today, he added.  Sustained capital outflows from domestic stocks markets also predominantly weighed on the trading front.

Foreign portfolio investors (FPIs) sold shares worth Rs 1,214.18 crore on Wednesday as per exchanges data.

After getting off to a strong start to the year, the Indian currency has surrendered nearly 2% of its value against the dollar largely disappointed by government's decision to increase fiscal deficit targets and growing worries over fiscal slippage due to rising crude prices.

Meanwhile, after a brief overnight relief rally, local equities once again turned shaky and succumbed to modest profit-taking even as wary investors squared off their long positions on the last trading session of February series contracts in the derivatives segment.

Globally, the US dollar pulled slightly back but remained near one-and-a-half week highs against other major currencies on Thursday, after the minutes of the Federal Reserve's latest policy meeting boosted expectations for upcoming US rate hikes.

The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 90.01 in early trade.

In cross-currency trades, the rupee fell back against the pound sterling to settle at 90.18 per pound from 90.15 and drifted against the euro to close at 79.88 as compared to 79.78 earlier.

The local unit also pulled back against the Japanese yen to conclude at 60.59 per yens from 60.28 on Wednesday.

Elsewhere, the British pound retreated sharply against the US dollar after the UK gross domestic product growth for the final quarter of 2017 was revised down as the Office for National Statistics published its second estimate on Thursday amid ongoing Brexit concerns.

The common currency euro, however continued to reel under pressure against the greenback as investors await the outcome of the last European Central Bank meeting minutes later in the day.

In forward market today, premium for dollar dropped sharply due to consistent receiving from exporters.

The benchmark six-month forward premium payable in July slumped to 115-117 paise from 126-128 paise and the far-forward January 2019 contract also fell sharply to 240.50-242.50 paise from 260-262 paise previously.