MUMBAI: The Indian rupee on Tuesday suffered its worst single-day fall in more than 18 months as local shares fell more than 2 percent and the dollar gained sharply against major currencies. The partially convertible rupee ended at 47.16/17 per dollar, down 1.7 percent from 46.36/37 at close on Monday.
The rupee had plunged 2.6 percent on Nov. 12, 2008, Thomson Reuters data shows. However traders said the sell-off was more in reaction to euro-zone worries and that fundamentals have not changed, especially with data on Tuesday showing the underlying strength of the Indian economy.
"Markets are in 'fear' mode, but they can swing to 'greed' mode with equal ease as recent episodes have shown," said Priyanka Chakravarty, forex strategist at Standard Chartered Bank. "They (Europe) already have the policy efforts in place. In my view, market moves are already exaggerated, driven by fear rather than fundamentals," she added.
Indian shares ended 2.2 percent lower as renewed doubts over the pace of the global economic recovery and weak European markets prompted investors to book profits.
Foreign fund inflows are the main drivers of the Indian currency, and any pullout in stocks affects the rupee as well. Foreign funds had pulled out about $20 billion from Indian equities in May, according to the market regulator's data.
Traders said the rupee will track Indian shares in the short-term, duplicating expected volatility. Meanwhile the euro fell to a 4-year low against the dollar on Tuesday as fears the euro zone's debt crisis could spread to its banking system hit the single currency, while deteriorating sentiment supported the greenback.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange were at 47.3000 and at 47.2975 on the MCX-SX, with the total traded volume on the two exchanges at about $8.11 billion.(Source:ET)