It has become a complete turnaround for Indian Rupees this month (June) because the US Federal Reserve showed a withdrawal of several generous policy responses to pandemics in their last meeting.

After appreciating more than 2 percent in April, Indian Rupees have destroyed almost all clock increases last month. The main dent came when The US Fed delivered a hawkish shift, shocking the way in a big way and caused interference with all asset classes, including Indian rupees.

In contrast to the previous view of the rates of survival near zero to 2023, the sudden Fed signal from the accelerated timeline for the increase in interest rates showed the reverse risk with the US dollar, advanced too. The steep increase in the dollar index was a reaction to a more hawkish Fed policy meeting than expected to trigger sharp depreciation in the rupee-dollar exchange rate. The dollar index, which tracks the strength of the greenback against a basket of major currencies has increased by more than 2.0 percent since the announcement. Fallout FOMC on the Forex market was quite pronounced as a rupee fell to a six-week low after the news, and was the second worst hit between Asian currencies.

The Fed has maintained status-quo on bond purchasing rates and programs, but the median projection now shows two levels of 25 BSP level to 2023 amid the speed of economic recovery in the US. In addition, even though The Fed has stated that any inflation is likely to be a ‘transitor’ but the inflationary pressure becomes extensive. CPI printing higher than the estimated 5 percent of the years in May, the sharpest increase in almost three decades shows that inflation stings seem quite persistent than the anticipated Fed.

The US economy continues to power in front of sustainable drive vaccination and most fiscal and monetary from US authorities. In addition, inflation has risen in the midst of prices soaring most commodities – hard and soft because of the rapid increase in the money supply. After sustainable months with their accommodating examples, the Fed must take into account the strong advantages expected from the US economy that recovers from the pandemic and the impact of loose monetary policy at increased price pressure.

When an unprecedented monetary policy of the period of crisis seems to change, tailwind against the global equity of the continuation of the Fed’s accommodative attitude is maintained long can soon begin to fade. Time and the rate of increase in interest rates in the US and tapered from the $ 120 billion bond purchase program per month will be very important for the equity and forex market. Even the tapered discussion of quantitative easing (QE) can begin earlier than expected. This has the potential to divert the flow of money from equity close to the highest record towards the US bond market. Developing countries as we can begin to witness the slowdown in capital inflows for the coming months, which lead to depreciation of domestic rupees in the medium term.

Another major factor that weighed on Rupees is the hardening of crude oil prices, where they traded close to two-year highs on the international market. This then leads to the increase in WPI and CPI in the domestic front. More than that, the upward revisions in inflation estimates hurt risk sentiment on. In addition, even when foreign exchange reserves have surged to record the highest $ 608 billion, the RBI has indicated that forex reserves are still inadequate and are on dollar purchases, which lead to local units.