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NEW DELHI: The rupee strengthened versus the US dollar in early trade Friday as the greenback retreated sharply from near two-decade highs touched last week amid a slump in US Treasury yields.

The partially convertible rupee opened at 77.4210/$1 as against a record closing low of 77.7250/$1 on Thursday.

The Indian currency, which was last at 77.5030/$1, moved in a range of 77.3880-77.6550/$1 so far in the day.

The US dollar index, which has witnessed a ferocious gaining streak over the last couple of weeks – strengthening more than 8 per cent – fell to an 18-month low on Friday and was last at 103.07.

Yield on the 10-year US government bond fell to a more-than-two-week low of 2.77 per cent on Thursday.

The US dollar index, which measures the currency against a basket of six major rival currencies, has gained owing to the Federal Reserve’s aggressive rate hike plan to curb surging inflation in the country.

Investors have also flocked to the safety of the US dollar amid risk aversion caused by the continuing war in Ukraine and fears of a growth slowdown in China.

The sharp global strength in the dollar has taken its toll on the rupee, which has shed 4.2 per cent against the greenback so far in 2022. On May 19, the domestic currency hit an all-time low intraday level of 77.7250/$1.

According to dealers, the Reserve Bank of India has been aggressively intervening in the foreign exchange market, including in the forwards and futures segment, in order to curb excessive volatility in the rupee.

On Thursday, the central bank was said to have been selling dollars near the 77.70/$1 level after the rupee started off the day on a record opening low, dealers said.

However, with India’s macro-economic fundamentals weakening along with global headwinds, dealers said that they expect the RBI to permit the rupee to gradually depreciate.

Domestic inflation shot up to an eight-year high in April, while multiple global agencies have reduced India’s growth forecasts.

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