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India’s Rupee Snaps Two-Day Loss After U.S. Averts Debt Default

Oct. 17 (Bloomberg) -- India’s rupee snapped a two-day loss after U.S. lawmakers raised their nation’s debt ceiling, averting a default that could have damped demand for emerging-market assets.

Congress voted to halt a 16-day government shutdown, ending the fiscal impasse. Lawmakers didn’t resolve any of their long-term divides on fiscal policy and will need to return to the same issues over the next four months.

“The U.S. has just postponed its debt worries, not resolved them,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “In the longer term, rupee weakness will persist.”

The rupee gained 1 percent from Oct. 15 to 61.22 per dollar at the 5 p.m. close in Mumbai, according to prices from local banks compiled by Bloomberg. The market was closed on account of a holiday yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 99 basis points, or 0.99 percentage point, to 13.42 percent from yesterday.

Congress acted the day before U.S. borrowing authority was scheduled to lapse as lawmakers engaged in their fourth round of fiscal brinkmanship in less than three years. The agreement negotiated by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell will fund the government at Republican-backed spending levels through Jan. 15, 2014, and suspend the debt limit through Feb. 7, setting up another round of confrontations then.

Three-month onshore rupee forwards rose 1 percent to 62.66 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.7 percent to 62.63. 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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