The rupee depreciated to a new closing low of Rs 84.87 against the dollar due to a rise in US Treasury yields and weakness in the Chinese yuan, said dealers. The widening of India’s merchandise trade deficit in November further weighed on the local currency.

       The rupee had settled at Rs 84.80 per dollar on Friday.

       Meanwhile, the marginal decline in the dollar index supported the Indian unit during the day. The dollar index fell by 0.14 per cent to 106.85. It measures the strength of the greenback against a basket of six major currencies.

       Foreign exchange market participants said that state-owned banks sold dollars on behalf of the Reserve Bank of India (RBI) to avoid excess volatility.

       “The rupee has weakened in anticipation of trade data, which reveals that the trade deficit has reached an all-time high. It is expected to weaken further in the near term. While the domestic currency has remained range-bound and stable for quite some time, it could weaken further against the dollar if the trade deficit widens or capital flows become weaker,” said Gopal Tripathi, head of treasury and capital markets, Jana Small Finance Bank.

       The US Fed's monetary policy decision, along with those of the Bank of England (BoE) and Bank of Japan (BoJ), will play a significant role in market performance this week, said dealers. Meanwhile, domestic indicators such as gross domestic product (GDP) growth and foreign portfolio investor (FPI) activity will shape market sentiment. The market expects the Fed to cut rates by 25 basis points (bps) in the upcoming meeting, while holding off on a cut in January.

       “The US Fed’s monetary policy decision, accompanied by the BoE and BoJ, will play a significant role in market performance this week, while domestic indicators like GDP growth and FPI activity will shape market sentiment. The market expects the Fed to cut by 25 bps on December 18 but forego a cut in January. The US economy has been resilient in the face of high interest rates, which means the potential for inflation to rise if the economy overheats is a problem the Fed will have to address,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

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