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The Indian rupee put on a strong performance on Friday, gaining 16 paise against the US dollar, closing at 82.93 in contrast to the previous day’s 83.09.

The day began on a positive note, with the rupee opening 27 paise higher against the US dollar. The boost came after JPMorgan’s announcement of India’s inclusion in the emerging market bond index, a move anticipated to usher in substantial inflows. Consequently, the local currency commenced trading at 82.82 per dollar, a marked improvement from the prior day’s closing figure of 83.09. Meanwhile, the 7.18% 2033 Government Bond yield displayed a similar trend, opening at 7.08% compared to the previous day’s closure at 7.14%.

Understanding the Factors Driving the Dollar Index

In the global context, the US dollar index surged to 105.74, its highest point in over six months. Simultaneously, the US 10-year Treasury yield soared to 4.50%, a level last seen in 2007. This rally was driven by expectations that the US Federal Reserve would maintain higher interest rates for an extended period. In response to these developments, the rupee experienced a minor depreciation, ending 2 paise lower at 83.09, as per the latest business news.

JPMorgan revealed that Indian government bonds would soon become part of the Government Bond Index-Emerging Markets index and the index suite. This inclusion, set to commence on June 28, 2024, will span ten months, with index weighting incrementing by 1% increments. India’s ultimate index weighting is anticipated to reach 10%, according to JPMorgan.

The news of this index inclusion carried substantial implications, potentially translating to inflows of approximately $24 billion into eligible government bonds from the beginning of next year until May 2025, according to IDFC First Bank’s analysis, as reported by Reuters. However, the upward momentum of the rupee was partially capped by the uptick in crude oil prices.

Brent crude oil futures registered a 0.9% increase, reaching $94.12, and marking an overall 8% surge for the month. Furthermore, in Asian trading, the 10-year U.S. yield hit a 16-year high at 4.50%, according to global business news.

On the domestic front, the benchmark Indian equity indices, the Sensex and Nifty 50, struggled to maintain gains, closing in the red for the fourth consecutive trading session. Weak global cues weighed on investor sentiment, with elevated US Treasury yields and rising crude oil prices diminishing appetite for riskier equities.

https://www.businessworld.in/