Rupee Declines 84 Paise, Ending at 85.61 Against US Dollar

The Indian rupee experienced a significant decline on Thursday, falling by 84 paise to close at 85.61 against the US dollar. This drop was largely attributed to escalating geopolitical tensions between India and Pakistan, which prompted investors to seek refuge in the US dollar. The rupee’s performance was further impacted by rising crude oil prices and a strong dollar, leading to a volatile trading session in the domestic markets.

Geopolitical Tensions Impact Currency

The recent military actions between India and Pakistan have heightened risk aversion among investors, contributing to the rupee’s decline. Reports indicate that Pakistan’s military attempted to target Indian military sites with drones and missiles, which were successfully intercepted by India’s defense systems. This situation has led to increased demand for the US dollar as a safe-haven asset. Forex traders noted that the rupee opened at 84.61 on the interbank foreign exchange market, fluctuating between a high of 84.52 and a low of 85.77 before settling at 85.61. The rupee’s depreciation follows a previous drop of 42 paise, which occurred due to market reactions to India’s military operations against terrorist camps in Pakistan and Pakistan-Occupied Kashmir.

Market Reactions and Economic Indicators

In addition to geopolitical concerns, the rupee’s decline was exacerbated by a robust US dollar and rising crude oil prices. The US dollar index rose by 0.46% to 100.07, reflecting its strength against a basket of major currencies. Meanwhile, Brent crude prices increased by 1.05% to USD 61.76 per barrel, further straining the rupee. Analysts predict that the rupee may continue to face downward pressure if geopolitical tensions escalate. Anuj Choudhary, a research analyst at Mirae Asset Sharekhan, stated that while the rupee is likely to trade with a negative bias, foreign institutional investor inflows could provide some support at lower levels.

Domestic Market Volatility

The domestic equity market also experienced notable fluctuations amid the geopolitical developments. The BSE Sensex fell by 411.97 points, or 0.51%, closing at 80,334.81, while the Nifty index dropped by 140.60 points, or 0.58%, to end at 24,273.80. The volatility in the markets was largely driven by news of the Indian Armed Forces successfully thwarting Pakistani military attempts to target Indian sites. Despite the market downturn, foreign institutional investors were net buyers, acquiring equities worth Rs 2,585.86 crore on Wednesday, according to exchange data.

Global Economic Context

In the broader global economic landscape, the Federal Open Market Committee (FOMC) decided to maintain US interest rates at 4.25%-4.50%. Federal Reserve Chairman Jerome Powell emphasized the uncertainty surrounding the economy’s trajectory, citing potential pressures from trade uncertainties and inflation concerns. As the situation evolves, both domestic and international factors will continue to influence the Indian rupee’s performance in the coming days.

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