Indian Rupee Faces Pressure from Rising US Yields and Stronger Dollar

The Indian rupee is poised to open slightly weaker on Tuesday, influenced by rising US Treasury yields and a stronger dollar driven by euro weakness. Traders anticipate the Reserve Bank of India (RBI) will continue to moderate the rupee's decline through market interventions.

The rupee is expected to trade between 96.32 and 96.34 against the dollar, after closing at 96.2925 on Monday. This level is about 0.6% above its all-time low of 96.96, reached in May. Over the past month, the rupee has faced pressure from higher oil prices, rising US yields, and foreign equity outflows, which have increased demand for dollars.

A currency trader at a bank noted, "The way things are, it’s only a matter of time before we see 97." While the RBI has been active in selling dollars to ease the rupee’s decline, recent interventions suggest it may not defend a specific level if underlying pressures persist.

The dollar index has climbed past 102, supported by euro weakness and rising longer-dated US Treasury yields, nearing its highest level since April 2022. The euro has been weighed down by political uncertainty and fiscal concerns in the eurozone. Meanwhile, the 10- and 30-year Treasury yields hit fresh 24-year highs as bond selloffs continued.

Data released on Monday showed that US services-sector activity remained resilient in August, contributing to upward pressure on yields. The survey also indicated a jump in prices paid by businesses for inputs, suggesting that inflationary pressures may linger longer than expected.