Indian rupee pressured by US yields, euro-led dollar strength; RBI acts as buffer

Indian currency traders anticipate the rupee to open slightly weaker on Tuesday, pressured by a rise in long-term US Treasury yields and the euro-driven strength of the dollar. As of Monday, the Indian rupee stood at 96.2925 to the dollar, around 0.6% below its all-time low of 96.96 reached in May. The currency has experienced sustained pressure over the past month due to a combination of rising oil prices, surging US Treasury yields, and foreign equity outflows driving demand for the dollar.

The Reserve Bank of India (RBI) has been attempting to cushion the currency's decline by selling dollars when the rupee faces stress. However, recent interventions suggest that the central bank may not impose strict limits on the rupee's depreciation if the underlying pressures persist. A currency trader at a bank noted that the decline could potentially push the rupee to the 97 mark.

Meanwhile, the dollar index has risen above 102, buoyed by the euro's weakness and higher long-term US Treasury yields. The euro has been negatively impacted by political uncertainty and fiscal concerns within the euro zone. In the United States, the 10- and 30-year Treasury yields have reached record highs, with the recent decline in bond prices continuing.

On Monday, data revealed that U.S. services-sector activity remained resilient in August, contributing to further upward pressure on yields. Additionally, the survey indicated a significant increase in business input costs, indicating that inflationary pressures may persist.