By Anushka Trivedi
MUMBAI, March 14 (Reuters) - The Indian rupee posted its
worst performance against the dollar in five weeks on Tuesday,
as fears of contagion from the collapse of Silicon Valley Bank
(SVB) weighed on risk sentiment ahead of a key U.S. inflation
data.
The rupee ended down 0.44% at 82.49 per dollar,
marking its biggest percentage drop since Feb. 6.
Traders were adding long USD/INR positions ahead of the U.S.
inflation data that could influence the Federal Reserve's
monetary policy decision next week.
A sustained move above 82.50 "can bring in a new wave of
speculative buying and open doors for USD/INR to reach 83.00,"
said Anindya Banerjee, head of research - FX and interest rates
at Kotak Securities.
After SVB's sudden collapse, markets have scaled
back their bets on how much further the Fed would raise interest
rates, as the central bank now has to balance between fighting
inflation and managing stress in the financial sector.
Futures show a 33% chance that the Fed would keep rates on
hold next week, with rate cuts expected as early as June. Only a week ago, markets were staring at a possibility of a
50 basis point (bps) hike after Fed Chair Jerome Powell's
hawkish comments.
"In the worst case scenario, where a sharper slowdown in the
U.S. is coupled with financial stability risks as the Fed
tightens monetary policy further could be unanimously asset
negative for emerging markets," HDFC Bank economists wrote in a
note.
Across the region, Asian currencies and stocks fell as the
dollar index rebounded on safe-haven bids, while U.S.
bond markets steadied.
The two-year Treasury yield traded at 4.20% after
slipping under 4% overnight for the first time since early
October.
Rupee premiums extended their rise, with one-year implied
yield hitting a six-week high at 2.36%. Traders
saw 2.40% as a key resistance level.
(Reporting by Anushka Trivedi; editing by Eileen Soreng)
anushka.trivedi.thomsonreuters.com@reuters.net))
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