Rupee Swings Rise to Two-Week High Ahead of Federal Reserve Meet

  • One-month implied volatility at highest level since Oct. 15
  • Futures contracts show 4% chance that U.S. will ease Wednesday

A gauge of expected swings in India’s rupee rose to a two-week high as investors awaited Federal Reserve’s interest-rate decision.

The rupee’s one-month implied volatility, used to price options, rose three basis points on Wednesday to 6.40 percent, the highest closing level since Oct. 15, in Mumbai, data compiled by Bloomberg show. In the spot market, the rupee closed at 64.9275 a dollar, compared with 64.9650 Tuesday. It earlier declined to 65.09, the weakest level since Oct. 21.

“The volumes in the currency market were thin ahead of the the FOMC decision,” said Arnab Sardar, a Mumbai-based currency trader with Mumbai-based Dhanalaxmi Bank Ltd.

Futures contracts show a 4 percent chance of a Fed rate increase this month and 59 percent odds of one in March.

Most Asian currencies declined Wednesday because potentially higher U.S. rates will reduce the allure of emerging-market assets. The Malaysian ringgit declined 0.3 percent while Singapore’s dollar fell 0.2 percent and the Philippine peso dropped 0.1 percent.

Foreign Holdings

The rupee has gained 1 percent so far in October as the central bank moved to grant global funds greater access to sovereign bonds and allowed them to buy notes issued by state governments for the first time. Overseas holdings of rupee-denominated debt increased 169 billion rupees ($2.6 billion) in October. Overseas investors have also bought a net $989.2 million of local shares this month through Tuesday.

Government bonds rose on Wednesday, with the yield on 10-year notes dropping one basis point to 7.59 percent, according to prices from the central bank’s trading system.

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