The Indian rupee plunged by 84 paise to close at 85.61 (provisional) against the US dollar on Thursday, amid heightened geopolitical tensions between India and Pakistan. The sharp depreciation of the rupee came as investors turned risk-averse following military escalations in the region. Forex traders noted that the rupee was under pressure as geopolitical risks spiked, with the Pakistani military launching multiple drone and missile attacks on military targets in northern and western India.
The Indian defense system successfully neutralised the threats, but the uncertainty around the situation weighed heavily on market sentiment. Additionally, a stronger US dollar and rising crude oil prices contributed to the rupee’s decline.
The rupee opened the session at 84.61 and moved between an intra-day high of 84.52 and a low of 85.77 against the greenback. By the end of the trading day, it closed at 85.61, registering a loss of 84 paise compared to its previous closing of 84.77.
On Wednesday, the rupee had already weakened by 42 paise, closing at 84.77 against the dollar, after India conducted military strikes on terrorist camps in Pakistan and Pakistan-Occupied Kashmir. The ongoing geopolitical tensions continue to add pressure to the domestic currency.
Commenting on the situation, Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, stated, “We expect the rupee to trade with a negative bias due to the strong dollar and escalating geopolitical tensions between India and Pakistan. Any further escalation could put additional pressure on the rupee. However, Foreign Institutional Investor (FII) inflows may provide support at lower levels.”
The US dollar index, which tracks the strength of the greenback against a basket of six major currencies, was up by 0.46 per cent at 100.07. Additionally, Brent crude, the global oil benchmark, rose by 1.05 per cent to $61.76 per barrel, further exacerbating concerns about rising import costs.
On the domestic front, the equity market saw heavy volatility, with the BSE Sensex dropping 411.97 points (0.51 per cent) to close at 80,334.81, and the Nifty slumping by 140.60 points (0.58 per cent) to settle at 24,273.80.
Meanwhile, the Federal Open Market Committee (FOMC) of the US Federal Reserve held interest rates steady at the 4.25 per cent to 4.50 per cent range, as expected. However, Fed Chair Jerome Powell cautioned that the future of the economy remains uncertain due to trade tensions and the potential for inflationary pressures.
Despite these headwinds, Foreign Institutional Investors (FIIs) remained net buyers in the equity markets, purchasing equities worth Rs 2,585.86 crore on Wednesday.
In light of the ongoing geopolitical uncertainty, analysts suggest that the rupee could face further pressure if tensions between India and Pakistan continue to escalate, while traders will also be keeping an eye on upcoming economic data, including US unemployment claims.
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