Rupee Falls to 95 Zone Against Dollar Amid Expectations of Tighter US Monetary Policy

It’s been a significantly weak session for the rupee today, clocking its worst fall in nearly three weeks. The Indian currency chartered back into the 95 zone against the dollar . The domestic currency closed Wednesday’s session at 95.24 per dollar mark, down 0.6% weighed by a rebound in dollar index and rise in US treasury yields. The dollar index which gauges the strength of greenback against a basket of six major currencies was up 0.16% on the day quoted at the 101.3 mark. The index gained strength as strong US job openings data has reinforced the expectations of tighter monetary policy by the US Federal Reserve . Majority of market participants weigh in at least one rate hike by the Fed for this year. A rise in interest rates usually weigh negatively on emerging market currencies, as it makes US securities more attractive to global investors. So far this year, foreign investors have withdrawn over Rs 2.1 lakh crore from domestic equities, surpassing previous year’s record outflow of Rs 1.6 lakh crore. Traders reported that while state-run banks sold dollars on behalf of the central bank, the intervention was limited in nature. “Looks like there were hardly any inflows on FCNR deposits due to lower interest rate differential . RBI therefore stopped supporting the rupee at 94.75 and we could see the fall happening,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP. Additionally, the treasury head added that currency traded with a weaker bias tracking declines in its Asian peers. “RBI may not be in a position to sell more dollars and therefore allowed the weakness,” he noted. Concerns over the US-Iran situation continue to keep the market sentiment fragile. Iran’s foreign minister, Abbas Araqchi in a social media post on X cautioned that any threats to Tehran’s leadership and governance will be dealt with a powerful response. Geopolitical uncertainties weigh negatively on emerging market currencies, increasing the safe-haven demand for greenback. “Market participants are closely tracking the progress of the US-India trade negotiations and the US-Iran talks in Doha, both of which could influence risk sentiment and energy prices.,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities. Analysts remain cautious over the currency’s trajectory adding that significant dollar inflows are required for any meaningful appreciation. “ Technically, the rupee is expected to trade in the 94.75–95.55 range, with global cues and foreign fund flows remaining the key drivers,” Trivedi added