USD/INR: Rupee falls after last week’s rally as US Treasury yields rise

Key points

India’s Rupee began the new week on the back foot against the US Dollar, following a 0.68% rally in the prior week, as US bond yields rose and weak China macro data provided more proof of a broad loss in economic recovery momentum.

US Treasury yields rebounded from recent lows on Friday, as consumers raised their inflation expectations in July. According to the University of Michigan’s preliminary data, 1-year inflation expectations rose to 3.4% in July from 3.3% in the prior month.

The 2-year US Treasury Note yield was last at 4.747%, rising from 4.611% registered last week – the lowest level since June 12th.

The 10-year US Treasury Note yield was last at 3.817%, up from 3.758%.

“It’s difficult to put any comforting spin on the lift in U.S. household 1-year-ahead inflation expectations… when the consensus had been for a fall,” ANZ analysts wrote in an investor note.

China’s economy expanded at an annualized rate of 6.3% during the second quarter, data showed, while being well short of market consensus of a 7.3% growth.

As of 7:04 GMT on Monday USD/INR was edging up 0.15% to trade at 82.1550. Last Friday, the exotic Forex pair went down as low as 81.9400. The latter has been the pair’s weakest level since July 5th (81.9260).

The Rupee rose last week, tracking other Asian currencies, due to optimism regarding the US inflation outlook and expectations that the Fed is approaching the end of its tightening cycle.