MUMBAI – The Indian rupee Wednesday dropped to its lowest level in six weeks against the U.S. dollar, shadowing the euro as investor sentiment soured.
The dollar was quoted at 55.91 rupees, up from 55.66 rupees in late Asian trade Tuesday.
The rupee started the day on a weak footing as worries over a severe economic slowdown re-emerged, pushing investors into currencies considered to be safer.
Poor manufacturing data from the U.S., Europe and China hurt risk sentiment.
Further, Tuesday's rally in the euro ran out of steam ahead of a meeting of the European Central Bank. The market hopes the ECB will take on a more proactive role to stabilize the euro zone's debt problem.
Hemal Doshi, currency strategist at Geojit Comtrade Ltd., said consistent dollar demand has hurt the rupee.
"While external factors have hurt the rupee, there is also disappointment over Parliament not functioning properly," he added.
Opposition parties have been disrupting proceedings in Parliament after the federal auditor said the process India followed to allocate coal blocks led to a huge revenue loss for the government.
Mr. Doshi expects the dollar to trade within 54.80-56.20 over the next three to six months.
In the sovereign debt market, Indian government bonds reversed a dull start to finish higher as investors bought into safer assets.
The benchmark 8.15% 2022 ended at 99.79 rupees, compared with 99.57 rupees on Tuesday.
Bond prices rose also on expectations the government may increase cooking gas and auto fuel prices after the Parliament session is over Friday, traders said.
While a fuel-price rise will push up inflationary pressures and is detrimental to the prospects of an interest rate cut, it is a significant step toward strengthening government finances. Such a move would reduce the burden of subsidies and lower the government's market borrowing.
India plans to borrow a net of 4.79 trillion rupees from the market in the fiscal year through March.
"The bond supply is the bigger trigger that needs to be watched out for," said a note from Religare Macquarie Private Wealth.
"The fiscal situation is truly alarming and a substantial slippage cannot be ruled out," it said.
