Rupee drops on position adjustments, premiums decline on US yields

MUMBAI, July 28 (Reuters) - The Indian rupee declined on Friday, pressured by the resurgent dollar and position adjustment by speculators, while premiums dropped following a rise in U.S. yields.

The rupee was at 82.2650 to the U.S. dollar by 11:22 a.m. IST, down from 81.93. If rupees decline holds up, it would mark the worst session in just under two months.

“There has been a rally on the dollar index, but that I do not think is enough to explain todays fall (in rupee),” a foreign exchange spot trader said.

“It seems that the short dollar positions are opting out.”

The rupee had earlier in the week hit around 81.70, where it once again saw intervention by the Reserve Bank of India, which could be weighing on speculators holding dollar short positions, traders said.

The dollar index inched up in the Asia session, adding to Thursdays rally. The euros plunge following the European Central Bank policy outcome and the upbeat U.S. data propped the dollar index to near 101.70.

The ECB raised rates by 25 basis points, along expected lines, but fanned talks of a September pause. Meanwhile, the U.S. June quarter GDP data was better-than-expected and initial jobless claims dropped to the lowest level since February.

“Following a round of US economic data and a higher probability for a pause in September by ECB, tables have turned in favour of the dollar,” said Kunal Kurani, associate vice president at Mecklai Financial.

“Rupee could travel towards 82.80 levels by August.”

U.S. yields rose on Thursday, pushing rupee premiums lower. The 1-year implied yield was down to 1.68%.

Meanwhile, the yen was up versus the dollar after the Bank of Japan decided to turn its yield curve control policy more flexible.