Rupee hits two-week high as US dollar weakens on Trump's attack on Fed chief Jerome Powell

The Indian rupee strengthened to a fortnightly peak on Thursday, bolstered by broad weakness in the dollar on the back of concerns over the future independence of the U.S. Federal Reserve.

The rupee rose 0.4% to close at 85.7050 per U.S. dollar, tracking gains in its regional peers.

Weak dollar aids rupee's gains

The dollar index fell to its lowest level since March 2022 and was last quoted at 97.1, down 0.3% on the day.

While the dollar had perked up on the back of safe-haven demand during the Iran-Israel conflict, the ceasefire has deflated the geopolitical risk premium.

Its troubles were compounded by the prospect of President Donald Trump making an early appointment of the next Federal Reserve Chair, which spurred worries over the independence of the U.S. central bank.

"A candidate who is perceived as being more open to lowering rates in line with President Trump's demands would reinforce the U.S. dollar's current weakening trend," MUFG Bank said in a note. The dollar index is down over 10% on the year so far.

Among major Asian currencies, the Taiwan dollar led the charge on Thursday with a 0.6% gain, while India's equity benchmarks, the BSE Sensex and Nifty 50, topped gains in regional stock.

Locally, dollar sales from at least two large foreign banks, likely on behalf of custodial clients, also helped the rupee on the day, a trader at a private bank said.

Meanwhile, dollar-rupee forward premiums perked up with the 1-year implied yield touching a one-month peak of 2.02% before paring gains.

An uptick in wagers on a July Fed rate cut, alongside the Reserve Bank of India's announcement of a measure to withdraw excess cash from the banking system, spurred paying interest on forward premiums, traders said.