Bloomberg News

India’s Rupee Declines to One-Week Low on Europe Crisis Concern

November 04, 2011

Nov. 3 (Bloomberg) -- India’s rupee dropped to the lowest level in more than a week on speculation investors will favor the dollar’s relative safety over emerging-market assets as European leaders struggle to contain a debt crisis.

The Dollar Index, which tracks the greenback’s performance against the currencies of six major trading partners of the U.S., rose for the fourth time in five days. German Chancellor Angela Merkel and French President Nicolas Sarkozy withheld 8 billion euros ($11 billion) of assistance to Greece and warned Europe will stop all aid if the debt-stricken nation votes against a bailout and austerity package in a referendum scheduled for next month.

“Right now the focus is only on Europe,” said Vikas Babu, a currency trader in Mumbai at Andhra Bank. “We will see demand for the dollar until there’s clarity on European developments.”

The rupee declined 0.4 percent to 49.385 per dollar as of 10:24 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 49.4875 earlier, the weakest level since Oct. 25. Exporters will look to convert their dollar earnings at around 49.50, keeping the rupee between 49.25 and 49.50 today, Babu predicted.

International funds have cut holdings of local equities by almost $2 billion from a record $104.4 billion reached in July, exchange data show. The BSE India Sensitive Index of shares lost 0.4 percent, falling for a fourth day.

Offshore forwards indicate the rupee will trade at 50.14 to the dollar in three months, compared with expectations for a rate of 49.99 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

--Editors: Anil Varma, Andrew Janes

To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net;

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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