Mumbai: The rupee witnessed a free fall - breaching the key psychological 65-mark to end at a fresh three-month low of 65.17 against the resurgent dollar on growing fears that the Federal Reserve would be more aggressive with interest rate hikes amid heightened volatility in the stock markets.
Stamping its second straight weekly slide, the home currency lost a staggering 44 paise. This is the lowest closing for the home currency since November 16, last year. The Indian unit plunged to a low of 65.32 in intra-day levels before regaining some lost ground.
Overall, the forex market sentiment turned highly fragile and injected an air of fear after the new Fed Chairman Jerome Powell's first congressional testimony gave a markedly bullish assessment of the US economic outlook, triggering speculation over a quicker pace of interest rate increases as the economy accelerates.
Heavy month-end dollar demand from oil companies along with aggressive hedging strategy adopted by importers in the wake of currency volatility and heightened worries over mass funds exouds predominantly weighed heavily on the rupee trade.
Besides, renewed concerns that a rebound in global crude oil prices will have an adverse impact on fiscal deficit too kept market participants cautious.
The Indian unit even failed to benefit from highly bullish macroeconomic trends that showed country's GDP grew 7.2 per cent in the third quarter even as regained title of worlds fastest-growing major economy amid imminent Fed rate hike fears.
Foreign investors pulled out nearly Rs 10,000 crore (USD 1.5 billion) from the Indian stock market so far this month primarily due to PNB fraud jitters coupled with global cues.
In the international energy front, crude benchmarks posted their first weekly fall in three weeks on fears US plans to impose tariffs on steel and aluminium could squeeze economic growth.
The rupee resumed higher at 64.65 from weekend close of 64.73 at the Interbank Foreign Exchange (forex) market on the back of good dollar supply and later strengthened to touch a high of 64.62.
However, rupee suffered a setback and tumbled sharply to hit a low of 65.32 before ending at 65.17, showing a steep loss of 44 paise, or 0.68 per cent. It has depreciated by 96 per cent in two-weeks fall.
On the global front, the greenback retreated sharply on concerns over a trade war, giving back a big chunk of its gains made following the hawkish remarks from the new Fed Chair Jerome Powell.
The dollar index, which measures the greenback's value against a basket of six major currencies, was lower at 89.95.
