Rupee Breaches 78 Per Dollar For The First Time Ever As Dollar Reigns Supreme

The rupee hit a new record low early on Monday and breached the 78 against the dollar for the first time ever, after closing at its weakest level of 77.93 in the previous session.

'More forceful' Federal Reserve tightening expectations after US inflation climbed to four-decade highs has pressured the rupee, which has hit new lows repeatedly since March when it first touched the 77 per dollar mark.

The rupee slipped 36 paise to a record low of 78.29 against the US dollar in early trade on Monday.

Indeed, at the interbank foreign exchange, the rupee opened at 78.20 against the American dollar, then lost ground to quote at 78.29 -- its record low level, registering a fall of 36 paise from the last close.

Forex traders said weak Asian currencies, a lacklustre trend in domestic equities and persistent foreign capital outflows weighed on investor sentiments.

The dollar climbed over 0.4 per cent on Monday and hit a 20-year peak of 135 yen, edging closer to the 2002 high of 135.20 yen.

Expectations of a more hawkish Fed are pushing up the dollar against more than just the yen. The dollar index, which tracks the greenback's performance against six peers was 0.3 per cent higher at 104.52, its highest in four weeks.

In the previous session, the rupee had tumbled to its previous all-time low of 77.93 against the dollar on aggressive Fed tightening expectations as US inflation jumped to a more than four-decade high.

"A phrase starting to be used more broadly amongst the central bank community is the need for 'more forceful' monetary tightening to address inflation," said Chris Turner, Global Head of Markets at ING.

"Central bankers driving real interest rates higher will be a continued headwind for risk assets and pro-cyclical currencies. This is a dollar-positive environment. As above, one is starting to hear of the need for 'more forceful' monetary tightening around the world now," he added.

Indeed, US consumer prices accelerated in May as gasoline prices hit a record high and the cost of food soared, leading to the largest annual increase in nearly 40-1/2 years, suggesting that the Fed could continue with its 50 basis points interest rate hikes through September to combat inflation.

The dollar, as a result, climbed to a near four-week high against a basket of currencies.