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The rupee today plunged by 14 paise to end at 65.15 against the US dollar as forex market sentiment took a hit after China retaliated with a tit-for-tat response to US tariff hike on imports.
Panic dollar buying by corporates and importers along with worries over fund outflows from domestic capital market predominantly kept trading mood at extreme level despite a strong start.
A massive sell-off in domestic equity markets also had a severe impact on spot transactions.
The benchmark BSE Sensex tanked over 352 points to close at 33,019.07, while Nifty cracked 117 points to end at 10,128.40.
The Indian unit touched a high of 64.91 in early trade before drifting back in late afternoon deals.
Though, the rupee’s downside was limited in the midst of dollar weakness.
The escalation in tension has also hit global stocks and several major emerging market currencies — a sign that this is a broader hit to confidence, fuelling concerns that escalating trade tensions between the world’s two largest economies could deal a blow to the global economy.
The fire and fury of a global trade battle took an ugly turn today after China took further trade retaliatory measures against the US manufactured goods.
In a quick response to US Section 301 tariffs, the Chinese government on Wednesday announced to impose additional tariffs of 25 per cent on 106 US products. The total value of the products will add up to around USD 50 billion.
Meanwhile, the Monetary Policy Committee (MPC) began its 2-day meeting today amid little hope of cut in the key policy rate because of hardening global crude oil prices.
The rupee opened mildly positive at 65 from Tuesday’s close of 65.01 at the inter-bank foreign exchange market (forex) here.
It later strengthened to a fresh high of 64.91 in mid afternoon deals on the back of steady dollar unwinding also supported by bullish local stocks.
However, the rupee took a sharp U-turn and quickly dropped to hit a low of 65.18 from session high towards the tail end trade driven by unsupportive global factors.
The local unit finally settled at 65.15, revealing a steep loss of 14 paise, or 0.22 per cent. It had recovered yesterday by 17 paise.
The RBI, meanwhile, fixed the reference rate for the dollar at 65.0232 and for the euro at 79.7900.
Globally, the dollar fell to the day’s lows against a basket of the other major currencies after China announced a fresh wave of tariffs on US imports.
The dollar index, which measures the greenback’s value against a basket of six major currencies, was down at 89.75 in early trade.
Crude oil prices lost further ground with Brent crude falling by 1.73 per cent to below USD 67.00/barrel in early Asian trade.
In the cross currency trade, the home currency fell back against the pound sterling to finish at 91.48 from 91.23 and dropped against the euro to end at 80.03 as compared to 79.94 yesterday.
It also pulled back against the Japanese yen to close at 61.35 per yens from 61.20 earlier.
Elsewhere, the British pound extended its downtrend against the greenback after data showed UK construction PMI unexpectedly slipped into contraction territory.
The common currency, euro remained under pressure as sentiment took a hit after Euro-area headline inflation jumped back in March, erasing two months of decline for the CPI, but core inflation disappointed and they continue to see the general inflation outlook fragile.
In forward market today, premium for dollar remained under pressure due to lower due to heavy receiving from exporters.
The benchmark six-month forward premium payable in August edged down to 108-110 paise from 109-111 paise and the fag-forward February 2019 contract also dropped to 230-232 paise from 231-233 paise previously.