The Indian rupee fell by 4 paise to 85.19 against the US dollar in early trade on Tuesday, reversing its previous day’s gains. The currency started at 85.11 in the interbank foreign exchange market but gradually weakened due to dollar short-covering and concerns over global economic factors. Although positive domestic equities initially supported the rupee, these gains were overshadowed by external economic pressures.
The decline in the rupee came as investors expressed concerns about the ongoing trade tensions and their potential to slow global demand. The US monetary policy, specifically the Federal Reserve’s interest rate decisions, continued to fuel uncertainties, with some speculating that a recession might be looming. President Biden’s criticism of Federal Reserve Chairman Jerome Powell, along with calls to lower interest rates, only added to the uncertainty surrounding the US economy.
Forex traders observed that while domestic equity markets were positive, with the BSE Sensex rising by 155.28 points, or 0.20%, the rupee was still under pressure. The Nifty index also posted a modest gain of 37.30 points, or 0.15%. Despite the upbeat sentiment in equities, the concerns over the global economic landscape remained a limiting factor for the domestic currency.
On Monday, the rupee had gained 23 paise, ending the day at 85.15 against the dollar, thanks to inflows into both debt and equity markets. However, the optimism was short-lived as traders continued to react to the challenges posed by international market conditions. The dollar index, which measures the US dollar against six other major currencies, was also weaker, trading 0.19% lower at 98.09.
Another influencing factor is the rise in global oil prices. Brent crude futures increased by 0.53%, reaching USD 66.61 per barrel, further compounding pressures on the rupee. High oil prices tend to increase the demand for dollars in India, as the country imports a significant portion of its oil needs, which can affect the rupee’s value.
In the broader market, Foreign Institutional Investors (FIIs) continued to show confidence in the Indian stock market, purchasing equities worth Rs 1,970.17 crore on a net basis on Monday. However, despite these inflows, the rupee remained susceptible to global uncertainties, indicating the continued vulnerability of the Indian currency to external factors.
