Re’s Gains Against Dollar Offset Losses Against Euro and Pound
Most recent market trends have shifted focus to the Indian rupee’s modest gains against the US dollar. However, a deeper analysis reveals a concerning trend: the rupee has depreciated against several non-dollar currencies, particularly the euro and the British pound. This situation presents a complex challenge for policymakers and market participants, as highlighted by various financial experts.
Rupee’s Performance Against Non-Dollar Currencies
The Indian rupee has shown a notable decoupling from the US dollar, with significant declines against other major currencies. Abhishek Goenka, CEO of IFA Global, pointed out that while the rupee’s performance against the dollar may appear stable, its weakness against currencies like the euro and pound complicates the economic landscape. He noted that the euro and pound have reached new highs against the rupee, which could benefit exporters who are not overhedged. Goenka emphasized that this trend is particularly advantageous for those receiving remittances in these currencies, suggesting that exporters consider risk reversals as a hedging strategy.
The implications of the rupee’s depreciation extend beyond exporters. As the dollar softens, it reflects a shift in global economic dynamics, with the US’s geopolitical influence waning. Goenka remarked on the changing role of the US in global affairs, indicating that this shift could have lasting effects on currency markets.
Impact of the Dollar’s Retreat
Forex consultant KN Dey attributed the dollar’s recent decline to the Trump administration’s delay in implementing new tariffs. He highlighted the euro’s rise to 1.15, a significant milestone since it constitutes a large portion of the dollar index. While this development has bolstered India’s foreign exchange reserves, Dey cautioned that it could lead to increased costs for travel and education in Europe. He also noted that European governments, facing their own economic challenges, may not tolerate prolonged currency appreciation and could take measures to address it.
Riya Singh from Emkay Global observed that the dollar index has fallen from 110.17 to below 98, benefiting non-dollar currencies. She expressed skepticism about the possibility of de-dollarization in the near future, attributing the dollar’s decline to uncertainties surrounding US policies and concerns about an economic slowdown. Singh pointed out that while some diversification into gold is occurring, a complete shift away from the dollar remains costly and largely untested.
Future Outlook for the Rupee
Harsh Madhusudan Gupta of Ionic Asset expressed optimism about the rupee’s potential to gain in both real and nominal terms. However, he remains doubtful about the feasibility of de-dollarization. Gupta explained that trade surpluses from other countries with the US have historically been reinvested into US treasuries, which supports the dollar. He warned that the imposition of tariffs could lead to a situation where the US still needs to import goods, potentially resulting in sustained inflation and further weakening the dollar.
As the global economic landscape continues to evolve, the rupee’s performance against both the dollar and non-dollar currencies will be closely monitored. The interplay of geopolitical factors, trade policies, and currency dynamics will play a crucial role in shaping the future of the Indian rupee and its impact on the broader economy.
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