The dollar climbed to a fresh two-year high, and the rupee fell to a record low early Thursday after the Federal Reserve raised interest rates and expected a more aggressive policy path for the current tightening cycle.

Bloomberg quoted the rupee at a record low of 80.4863 against the dollar after touching 80.4875, closing just below the key psychological level of 80 against the dollar.

The local currency fell 42 paise to an all-time low of 80.38 against the dollar in early trade, the PTI report said. According to media, foreign exchange traders said a stronger dollar in overseas markets, weaker domestic stocks, risk aversion and firm crude oil prices weighed on local units.

“Given the general strength of the dollar, the RBI may also consider revising its intervention function. We may see an 80.10-80.50 range on Thursday,” IFA’s School of Global Studies told PTI.

The dollar surged to a 20-year high amid an influx of safe-haven money as the prospect of further and faster-than-expected US interest rates spooked investors.

According to Bloomberg, the escalating war between Russia and Ukraine and tensions between Beijing and Taiwan further dampened sentiment.

The euro fell to a 20-year low of $0.9807 after Russia mobilised reserves for the first time since World War II. Currencies in Australia, New Zealand, Canada, Singapore and China fell to two-year lows, while the pound fell to its lowest level in 37 years. The yen is near a 24-year low as investors await a Bank of Japan meeting.

As investors price in the possibility of a soft landing for the economy and brace for damage to long-term growth, the US yield curve has widened its inversion, with short-dated Treasuries selling off and longer-dated Treasuries surging.
“The likelihood of a soft landing is likely to decrease, so policy needs to be tighter or more restrictive,” Fed Chairman Jerome Powell told reporters after announcing the rate hike.

The South Korean won fell below the 1,400 mark against the dollar for the first time since 2009, while the Chinese yuan weakened even as China set its reference rate higher than expected for the 21st day in a row.