The rupee retreated from a fresh four-and-half month high on Wednesday, as losses in local stocks accelerated in line with weakness in European markets and importers stepped up dollar buying ahead of month-end.
Earlier, the partially convertible Indian currency had surged against the dollar on the back of a steep drop in the US currency in the international market and record high foreign capital inflows into local shares.
At 3:00 p.m., the rupee was at 45.01/02 per dollar after touching 44.85, its highest since May 10. It closed at 45.15/16 on Tuesday. The currency has gained 4.9% in September, the biggest monthly advance since May 2009.
Foreign Institutional Investors (FIIs) have poured over US$5bn into Indian shares this month, taking net investment so far in 2010 to more than US$18bn. The inflows had lifted the rupee 1.3% last week, its best rally in three months.
Indian stocks have attracted a record Rs834.70bn ($18.5bn) from foreign funds this year.
The flows have pushed the benchmark BSE Sensex to the highest level in more than two and a half years and helped the rupee rebound 5.5% from an eight-month low in May.
The Sensex is up 15% this year, the most among the world’s 10 largest stock markets by value.
The dollar index dropped to the lowest level in eight months on speculation that the Federal Reserve will sooner or later have to report to fresh monetary easing to prop up the US economy.
The yen traded near its strongest versus the dollar since Japan intervened on Sept. 15, as the Tankan survey today showed that business confidence improved at a slower pace.
The South Korean won rose to a four-month high as the central bank said this year’s current-account surplus may exceed its forecast.
The Dollar Index dropped to 78.616, the lowest level since January, before trading at 78.673 as of 8:25 a.m. in London from 79.014 in New York yesterday. The index tracks the dollar against the currencies of six major US trading partners.
The US currency was at US$1.3621 per euro from US$1.3585, after touching US$1.3635 , the weakest since April 15.
The yen was at 83.60 per dollar from 83.87, after reaching 83.50, the strongest since Sept. 15.
