Rising US yields on Fed rate hike bets pile pressure on sliding rupee
I'm LongbridgeAI, I can summarize articles.The Indian rupee is under pressure, potentially hitting an all-time low due to rising U.S. Treasury yields linked to expectations of a Federal Reserve rate hike. The rupee has declined 0.6% this week and is on a seven-session losing streak. High oil prices and a selloff in U.S. bonds are exacerbating the situation, with markets now pricing in a near 50% chance of a Fed rate hike in 2026, a significant change from previous expectations.
By Nimesh Vora
MUMBAI, May 20 (Reuters) - The Indian rupee may hit an all-time low on Wednesday, as a surge in U.S. Treasury yields on rising expectations of a Federal Reserve rate hike this year compounds pressure on the already fragile currency.
The rupee is expected to open in the 96.75-96.80 range, per traders, having settled at 96.5325 on Tuesday.
The currency is on a seven-session losing streak, logging fresh lows against the U.S. dollar in six of those days. It has already shed 0.6% this week, extending a 1.6% decline from last week.
A surge in U.S. Treasury yields amid a broad selloff in developed market bonds is amplifying pressure on the rupee, which is already under strain from oil prices that are distorting daily dollar demand and weighing on capital flows.
The 10-year U.S. yield has jumped over 20 basis points in four days, while the 30-year yield has hit its highest since 2007. Shorter maturities have followed suit, with the jump driven by war-linked inflation concerns pushing up expectations of Fed rate hikes this year.
A selloff across U.S. bond markets has accelerated over the past week on stalled U.S.-Iran talks fuelling worries that oil prices will remain high for longer than anticipated.
Brent crude held near $111 per barrel on Wednesday, with U.S. President Donald Trump's comments that the Iran conflict will be resolved "very quickly" having little impact.With crude holding well above the $100 mark, markets are pricing in a near 50% probability of a Fed rate hike in 2026, a stark shift from a month ago when investors saw little to no chance of policy tightening.
"The rupee, having largely adjusted to the prospect of persistently high oil prices, now faces a repricing due to the sizeable shift in U.S. rates," a currency trader at a bank said.
(Reporting by Nimesh Vora; Editing by Sonia Cheema)