The Indian rupee, under pressure for the last few months, sank to a new low of 84.94 against the dollar on December 18, just 6 paise shy of the 85 mark.
The rupee opened at 84.92 against the dollar, 2 paise down from 84.90 against the previous close.
The home currency is under pressure ahead of the crucial US Federal Reserve meeting later in the day. The American central bank is widely expected to stay on course to deliver another 25 basis points (bps) rate cut.
More than the rate decision, it will be the Fed's insights on policy easing that is keeping markets on the edge.
According to the CME FedWatch Tool, 97.1 percent of investors are betting on the possibility of a 25 bps rate cut, higher than the 96 percent possibility seen a day ago. On the flipside, the odds of no change in Fed policy were less than 3 percent.
Shinhan Bank vice president Kunal Sodhani said the weakening of the Chinese Yuan would weigh on the rupee as then intervention may remain shallow.
US president-elect Donald Trump’s tweets on tariffs continue to create pressure on Asian currencies and thus on the rupee as well. Trump has again talked about tit-for-tat tariffs against India and other countries, adding to the pressure.
"If they tax us, we tax them the same amount," Trump was quoted as saying by news agency PTI. "India charges us 100 or 200 percent on some products. If they send us a bicycle and we send them a bicycle, they tax ours heavily while we charge them nothing. That’s going to change."
The rupee also came under pressure due to outflows of foreign investors and trade deficit, which widened in November.
Sluggish growth numbers in the second quarter of the current financial year have not helped either.
The depreciation of the rupee is a cause for concern for the Reserve Bank of India (RBI), which is forced to intervene in the currency market, depleting precious foreign exchange reserves.
In the past two months, India’s foreign exchange reserves have shrunk by more than $46 billion. The forex reserves fell to $654.857 billion on December 6 against $704.885 billion on October 4, RBI data shows.
Before October 4, foreign exchange reserves were rising constantly due to intervention by the RBI in the spot forex market.
The rupee has depreciated around 2 percent year-to-date against the dollar.
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