Rupee strengthened due to inflow of more foreign funds into stocks
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Mumbai (Uttam Hindu News): The rupee on Wednesday closed 5 paise higher at 83.32 against the US dollar, reaching an all-time high, due to inflow of more foreign funds into the Indian stock markets.
However, funds coming into the stock market are considered “hot money” and can exit at short notice. Therefore, market analysts are cautious about how much the rupee will strengthen going forward. A lot will also depend on oil prices. The dollar index, which gauges the US currency’s strength against six currencies, also traded 0.07 per cent lower, helping the rupee.
The dollar has recently begun to weaken on expectations that the US Federal Reserve will begin cutting interest rates next year. This has also helped emerging market currencies regain their lost ground. Forex traders said dollar buying by the RBI limited the rupee’s gains.
The purpose of buying and selling of dollars by the RBI is to prevent wide fluctuations in the rupee and keep it stable. When the rupee starts falling rapidly, the RBI sells dollars to support the Indian currency. Conversely, when the rupee appreciates, it gives the RBI an opportunity to buy dollars. It is also reported that the forex market is in a wait-and-watch mode ahead of the RBI Monetary Policy Committee (MPC) meeting, which has begun three-day deliberations to decide on interest rates. The monetary policy review will be announced on Friday.
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