India Rupee Volatility at Two-Week High as Dollar Strengthens

A gauge of expected swings in the rupee rose to a two-week high as speculation the Federal Reserve is moving toward higher interest rates buoyed the dollar.

Fed officials are weighing whether they should communicate more of their views about the probable pace of rate increases after they lift off zero next year, according to minutes of the U.S. central bank’s October meeting released yesterday. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, has risen 0.5 percent this week.

“There’s a bit of nervousness in the emerging-market space and the rupee isn’t an exception to that,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai. “The uncertainty on the Fed’s policy action has continued to have an impact.”

One-month implied volatility in the rupee, a measure of expected exchange-rate swings used to price options, climbed for a fourth day, rising 15 basis points, or 0.15 percentage point, to 6.26 percent in Mumbai, data compiled by Bloomberg show. That’s the highest since Nov. 7.

In the spot market, the rupee ended little changed at 61.9525 per dollar, prices from local banks compiled by Bloomberg show. The currency, which fell in each of the past five days, dropped to 62.22 earlier today, the lowest level since Feb. 20, amid gains in the dollar and on concern a slide in the yen to a seven-year low will hurt demand for exports from Asia’s emerging economies.

Three-month offshore non-deliverable forwards on the rupee were unchanged from yesterday at 62.81 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

In the bond market, the yield on the 8.4 percent sovereign notes maturing in July 2024 was little changed at 8.16 percent, according to the Reserve Bank of India’s trading system. It has declined 12 basis points this month as slowing inflation boosted speculation the central bank will reduce interest rates.

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