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Indian Rupee Has Biggest Weekly Drop in a Month on Fed, Ukraine

July 18 (Bloomberg) -- India’s rupee capped its biggest weekly loss in a month as the prospect of higher U.S. interest rates and conflicts in the Middle East and Ukraine hurt demand for riskier assets.

The Indian currency lost 0.6 percent this past week and 0.2 percent today to 60.2875 per dollar in Mumbai, data from local banks compiled by Bloomberg show. The yield on the 8.83 percent sovereign bonds due November 2023 was little changed for the week at 8.77 percent. It climbed three basis points today.

“The sell-off in the rupee has solely been on account of external factors,” said Nishit Mehta, a foreign-exchange dealer at RBL Bank in Mumbai. “We believe these losses won’t sustain and have provided investors in the Indian currency with a good buying opportunity.”

Federal Reserve Chair Janet Yellen told lawmakers this past week that benchmark-rate increases “likely would occur sooner and be more rapid than currently envisioned,” should labor-market improvements exceed projections. Ukraine’s government said pro-Russia rebels shot down a Malaysian Airlines plane yesterday, killing all 298 people on board, while Israel sent ground troops into Gaza as a cease-fire with Palestinian militants collapsed.

One-month implied volatility in the rupee, a gauge of expected swings used to price options, rose 16 basis points, or 0.16 percentage point, today to 6.48 percent, data compiled by Bloomberg show. It fell 70 basis points from a week ago.

Three-month offshore non-deliverable forwards fell 0.3 percent today and 0.2 percent from July 11 to 61.04 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point, or 0.01 percentage point, this week to 8.41 percent, data compiled by Bloomberg show. They were unchanged today.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Dick Schumacher

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