NEWS / Foreign Exchange

Rupee drops as dollar gains overseas

MUMBAI - The rupee weakened on Monday as the dollar held near two-month highs against the euro and the yen.

Growing expectations that U.S. interest rates will rise this week and possibly again in August supported the dollar, including against other Asian currencies.

Dealers said a stronger dollar in the offshore non-deliverable forwards market also provided investors an opportunity to buy dollars onshore and sell them overseas.

"I think the rupee's fall is not proportional to the dollar's gain against other currencies. Obviously, NDF buying should be the bigger culprit," said a dealer with a foreign bank, adding that cues from the local stock market will be crucial.

At 9:50 a.m., the partially convertible rupee was at 46.29/30 a dollar, down 0.4 percent from Friday's close of 46.12/13. It hit a three-year low of 46.57 on May 31 on equity outflows.

The U.S. Federal Reserve is widely expected to raise its benchmark rate for the 17th consecutive time by a quarter-percentage point to 5.25 percent on Thursday.

A rise in U.S. rates will narrow the differential with India and trigger concerns about outflow of rate-sensitive foreign capital. India's key short-term rate is now at 5.75 percent.

India's main share index gained more than 5 percent last week, but is down 18 percent from a May 11 peak of 12,671.11.