By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee rose sharply on Friday to post its best single-day gain in more than two years as worries over U.S. fiscal health and the impact of trade tariffs continued to weigh on the dollar, sparking a rally in emerging market currencies.
The rupee closed at 85.2125 against the U.S. dollar, up 0.9% on the day, its best one-day gain since November 2022.
For the week, the currency rose 0.3% as Friday’s rally helped it recover from the dip past 86 to the dollar in the previous session.
Persistent dollar sales from foreign banks, likely on behalf of custodial clients, and liquidation of bearish bets on the currency helped the recovery, traders said.
The rupee’s Friday move was a “rout” for the bearish bias that had built on the currency earlier in the week, when it failed to hold on to gains, a trader at a Mumbai-based bank said.
Asian currencies rallied by as much as 1% as the dollar index fell 0.5% to 99.3, hovering near its weakest level in a fortnight.
“With U.S.-Asian trade deals very much up for discussion over the coming months, $/Asia can stay under pressure,” ING Bank said in a note.
India’s benchmark equity indexes, BSE Sensex and Nifty 50 led gains among Asian equities with a 1% rise while the country’s benchmark 10-year bond yield declined.
The rupee has broadly underperformed its emerging market peers this month.
MSCI’s EM currencies index is up 1.7% over May so far while the rupee has declined about 0.8%.
In the near-term, the rupee is expected to hover between 84.80 and 85.80 but a breakout could prompt a pickup in corporate hedging which could accentuate the moves, said Abhilash Koikkara head of forex and rates at Nuvama Professional Clients Group.
Traders await the Indian central bank’s surplus transfer to the government, which is expected to be announced later in the day.
(Reporting by Jaspreet Kalra; Editing by Nivedita Bhattacharjee)
