Rupee Drops on U.S. Budget Concern as Bank Strike Affects Volume

India’s rupee snapped a two-day gain on concern stalled U.S. budget talks will damp demand for riskier assets, while a strike by the Asian nation’s state-run bank staff may weigh on trading volumes.

Three banking unions called for a strike today to protest against a bill passed by parliament on Dec. 18 that may spur expansion in the industry and increased competition. Officials from President Barack Obama’s administration told leaders of business and financial services groups that negotiations with House Speaker John Boehner have deteriorated in the past 24 hours, a person familiar with the meeting said.

“The currency will trade weaker today because of the concerns from abroad,” said Kamlakar Rao, Mumbai-based head of foreign-exchange at state-owned Allahabad Bank. “The strike will keep volumes suppressed and so any moves in the currency may be exaggerated.”

The rupee declined 0.3 percent to 54.7200 per dollar as of 9:53 a.m. in Mumbai, according to data compiled by Bloomberg. The currency has fallen 3 percent this year after plunging 16 percent in 2011. One-month implied volatility, a gauge of expected moves in exchange rates used to price options, fell two basis points, or 0.02 percentage point, to 10.18 percent. The rate has dropped 182 basis points in 2012.

Three-month onshore rupee forwards traded at 55.63 per dollar, compared with 55.50 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.60 versus 55.42. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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