Rupee Takes a Hit Amid Rising Tensions: What’s Next for the Indian Currency?
Rupee Declines Sharply Against the Dollar
Mumbai: The Indian rupee experienced a significant drop of 84 paise, closing at 85.61 (provisional) against the US dollar on Thursday, primarily influenced by escalating geopolitical tensions between India and Pakistan.
Forex analysts noted that investors adopted a risk-averse stance in the domestic market following the Pakistani military's attempts to target various military sites in northern and western India with drones and missiles, which were successfully intercepted by Indian defense forces.
In addition to these geopolitical concerns, a stronger US dollar index and rising crude oil prices further pressured the rupee.
During trading on the interbank foreign exchange, the rupee opened at 84.61, fluctuating between a high of 84.52 and a low of 85.77 against the dollar. It ultimately closed significantly lower at 85.61 (provisional), marking a decline of 84 paise from the previous day's close.
On the previous day, the rupee had already depreciated by 42 paise, finishing at 84.77 against the dollar, following India's military actions against terrorist camps in Pakistan and Pakistan-Occupied Kashmir.
A senior US military official has stated that the United States is closely monitoring the situation after India's military operations targeting terrorist positions in Pakistan.
"We anticipate that the rupee will continue to face downward pressure due to the strong dollar and ongoing geopolitical tensions between India and Pakistan. Any further escalation could exacerbate the rupee's decline," said Anuj Choudhary, a Research Analyst at Mirae Asset Sharekhan.
"However, foreign institutional investor inflows may provide some support for the rupee at lower levels. Traders are advised to watch for weekly unemployment claims data from the US. The USD-INR spot price is expected to fluctuate between 85.20 and 86," he added.
In related news, Defence Minister Rajnath Singh informed an all-party meeting that approximately 100 terrorists were neutralized during India's strikes on terrorist sites in Pakistan and Pakistan-occupied Kashmir, as part of the ongoing Operation Sindoor.
The dollar index, which measures the dollar's strength against a basket of six currencies, rose by 0.46 percent to 100.07.
Brent crude oil, the global benchmark, increased by 1.05 percent to USD 61.76 per barrel in futures trading.
The domestic equity market experienced significant volatility towards the end of trading on Thursday, following reports that the Indian Armed Forces thwarted attempts by the Pakistani military to engage military targets in northern and western India.
The 30-share BSE Sensex fell by 411.97 points, or 0.51 percent, closing at 80,334.81, while the Nifty dropped 140.60 points, or 0.58 percent, settling at 24,273.80.
Foreign institutional investors (FIIs) purchased equities worth Rs 2,585.86 crore on a net basis on Wednesday, according to exchange data.
Meanwhile, the Federal Open Market Committee (FOMC) maintained interest rates in the range of 4.25 percent to 4.50 percent, as anticipated. However, Federal Reserve Chair Jerome Powell indicated uncertainty regarding the economy's ability to sustain its growth amid rising trade tensions and potential inflationary pressures.