Indian rupee falls on weak Asian peers, premiums at 3-month low

MUMBAI, May 15 (Reuters) – The Indian rupee inched lower on Monday, bogged down by the fall in Asian peers, while forward premiums reached their lowest since February.

The rupee was quoted at 82.20 per US dollar by 10:54 a.m. IST, down from 82.1625 in the previous session. The rupee had fallen by 0.4% last week, tracking the jump in the dollar index.

It is unlikely that the rupee will see a larger fall from current levels, a trader at a private sector bank said. He expected the Reserve Bank of India to step in and sell dollars if USD/INR reaches the 82.40-82.50 level.

The dollar, supported by safe-haven flows, was at its highest level in a month versus its major peers. Asian currencies dropped.

The dollar found support from the move up in U.S. yields. The two-year US yield was back to near 4% following data that slightly pushed up the possibility of a rate hike by the Federal Reserve in June. The odds though remained overwhelmingly in favour of a pause. FEDWATCH

A survey from the University of Michigan showed long-term inflation expectations jumping this month to their highest reading since 2011.

A couple of Fed officials on Friday indicated some uncertainty about whether the US central bank will in fact pause interest rate hikes next month.

Meanwhile, the one-year implied USD/INR yield dropped to 2.06%, thanks to the rise in US yields and India’s April inflation data which eased to a 19-month low of 4.7% in April.

“We believe a macro regime shift is underway from high growth-high inflation to low growth-low inflation, which is likely to cause the RBI to pause in the near term,” Nomura said in a note.

(Reporting by Nallur Sethuraman in Mumbai; Editing by Sohini Goswami)