Indian Rupee Snaps Three-Day Gain as Fed Rate Bets Spur Dollar

  • Rupee reverses gains from data showing narrowing trade deficit
  • Ten-year bonds decline a second day; yield rises 2 bps

India’s rupee fell, snapping a three-day gain, on speculation outflows from emerging markets will increase as a probable quickening in the pace of U.S. inflation strengthens odds of the Federal Reserve raising interest rates as soon as next month.

Consumer prices in the U.S. rose 0.2 percent in October from the previous month, compared with a 0.2 percent decline in September, according to the median estimate in a Bloomberg survey. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, headed for a third day of gains.

Futures show a 68 percent chance the Federal Open Market Committee will announce a rate increase by Dec. 16, up from a 50 percent probability at the end of October. Foreign funds pulled $341 million from Indian shares last week, exchange data show.

“The Fed meeting is the next big event on the horizon,” said Rohan Lasrado, the head of foreign-exchange trading at RBL Bank Ltd. in Mumbai. “Markets will now be keenly watching the U.S. consumer-price inflation data due later today and capital inflows for direction.”

The rupee slipped 0.1 percent to 66.0350 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It had strengthened to as much as 65.9050 earlier after data showed the country’s trade deficit narrowed to the least since February.

Exports dropped 17.5 percent in October from a year earlier, while imports fell 21.2 percent, according to figures released after financial markets closed on Monday. That resulted in a $9.8 billion shortfall.

Government bonds fell for a second day, pushing the yield on the notes due May 2025 up two basis point to 7.67 percent, prices from the Reserve Bank of India’s trading system show.

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