Rupee falters in late deals, ends 17 paise lower at 68.74

Renewed demand for the US dollar from importers and some corporates also weighed on the forex trading.

A relief rally in local equities and bearish trend overseas, however, failed to arrest the rupee fall.

In a session marked by wide swings and volatility, the home currency touched a high of 68.45 and low of 68.77.

The rupee also weakened against the British pound, euro and Japanese yen.

After a short-lived recovery, forex market sentiment once again turned little shaky following the government's announcement to hike minimum support price (MSP) of kharif crops. The move is seen further propelling inflationary concerns that may prompt the central bank to raise interest rates more steeply than expected, thus hurting the nascent economic recovery.

In a major fillip to the farm sector, the government today approved a steep hike in the minimum support price (MSP) of most kharif crops, which will cost the exchequer more than Rs 15,000 crore.

The Reserve Bank had underlined the upside risk to inflation projections in its last monetary policy and raised the repo rate by 25 basis points.

The rate hike was clearly prompted against the grim backdrop of rising crude oil prices and elevated commodity inflation worldwide along with several uncertainties surrounding the baseline inflation path.

The rupee today commenced higher at 68.52 against overnight close of 68.57 at the Interbank Foreign Exchange (forex) market and gained further to hit an intra-day high of 68.45 in early morning deals on sustained dollar selling by exporters and banks.

However, reversing an initially upmove, the rupee succumbed to fresh dollar pressure in a knee-jerk reaction after the government announced increase in support prices for crops.

Falling to a session low of 68.77 towards the fag-end trade, the Indian unit finally settled the day at 68.74, showing a loss of 17 paise, or 0.25 per cent.

The rupee had recovered 23 paise after crashing to near 5-year low on Monday.

The MSP could prey on market's inflation worries as the rupee recovery was short-lived, a forex dealer commented.

The RBI, meanwhile, fixed the reference rate for the dollar at 68.5312 and for the euro at 80.0239.

The domestic bond market, however, rallied for the second straight day and the 10-year benchmark bond yield slipped further to 7.85 per cent from 7.88 per cent.

On the energy front, crude price edged up following a second successive drop in US crude inventories.

Brent crude futures, an international benchmark, is trading up at USD 78.06 a barrel, in early Asian trade.

Globally, the dollar dipped against a currency basket in thin trade ahead of the US Independence Day holiday as concerns over heightened trade tensions remained to the forefront.

The dollar index, which measures the greenback's value against basket of six major currencies, was up at 94.38.

In the cross-currency trade, the rupee retreated against the pound sterling to finish at 90.75 per pound from 90.42 and drifted back against the euro to end at 80.00 as compared to 79.91 earlier.

It also dropped against the Japanese yen to close at 62.21 per 100 yens from 61.88 yesterday.

Elsewhere, the British pound extended gains against the US dollar after the release of UK services PMI that rose strongly to 55.1 in June, strongest rate of expansion since Oct 2017 providing some fresh bullish impetus despite the ongoing uncertainty surrounding Brexit.

The euro is trading lower against the greenback, largely ignoring the upbeat German and the Eurozone services PMI that rose above expectations.

In forward market today, premium for dollar declined due to fresh receiving from exporters.

In forward market today, the benchmark six-month forward premium payable in November moved down to 120-122 paise from 122-124 paise and the far-forward May 2019 contract edged down to 268-270 paise from 270-272 paise.