India’s Rupee Declines to Two-Week Low on Fed Tapering Concern

India’s rupee fell to a two-week low on speculation a pickup in the U.S. economy will bolster the case for further stimulus cuts by the Federal Reserve, potentially slowing inflows into emerging markets.

The Federal Open Market Committee is due to meet Jan. 28-29 to review policy. Richmond Fed President Jeffrey Lacker said Jan. 17 that the central bank, which is cutting its monthly bond purchases by $10 billion to $75 billion starting January, may consider more reductions. Asian currencies also weakened after a report signaled China’s manufacturing may contract for the first time in six months.

The rupee fell 0.2 percent to 61.9350 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 62.0450 earlier, the weakest level since Jan. 9. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 26 basis points, or 0.26 percentage point, to 8.04 percent.

“The increasingly improved outlook of the U.S. economy is driving investors to the greenback,” said Abhishek Goenka, chief executive officer at India Forex Advisors Pvt. in Mumbai. “We expect the rupee to remain weaker than 62 per dollar in the coming weeks.”

China’s preliminary reading of 49.6 for January in a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics was below a final figure of 50.5 in December. It was also lower than all 19 estimates of analysts in a Bloomberg News survey, and pointed to weakening domestic and global demand. A number above 50 indicates expansion.

The Reserve Bank of India will hold the repurchase rate at 7.75 percent at a Jan. 28 review, according to 25 of 28 economists in a Bloomberg survey. Three see an increase to 8 percent. The U.S. will report jobless claims and home-sales numbers today.

Three-month offshore non-deliverable forwards declined 0.1 percent to 63.15 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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