Rupee falls 1 percent to two-year low after Fed's outlook deepens

The rupee fell 1 percent to its lowest in more than 2 years on Thursday as the dollar climbed to 7-month highs against major currencies after the Federal Reserve said there were “significant downside risks” to the economy but stopped short of bold monetary easing.

At 9:01 a.m. (0331 GMT), the partially convertible rupee was at 48.84 per dollar, after touching 48.85 - a level not seen since Sept.4, 2009. It had ended 0.6 weaker at 48.325/335 on Wednesday.

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The dollar rose on the prospect of higher short-term interest rates after the Fed said it would sell $400 billion of short-term Treasury bonds to buy longer-dated debt in a widely predicted move known as “Operation Twist,” aimed at stimulating the economy by forcing down long-term borrowing costs.

But it was the central bank’s bleak assessment of the world’s biggest economy that preoccupied markets, with oil and copper falling alongside stocks on fears of weakening demand, while some were disappointed that there were no bolder stimulus moves, given the extent of the Fed’s pessimism.

Reuters