The Indian rupee further declined further to a fresh low of 84.50 against the US dollar in the trade on November 22 as global geopolitical tensions and the greenback’s continuous appreciation accompanied by the FPI selling streak resumed.
The US Dollar index has risen by 3.10% this month and is almost at its highest point since December 2017, which tracks the dollar against six other currencies. Appreciation of the dollar has been supported by the sentiments that implementation of policies that may be commenced by President-elect Donald Trump could cause inflation and lower the odds of subsequent decrease in US interest rate.
This momentum is backed by credible economic releases in the US and statements from officials at the Federal Reserve suggesting inaction on rate cuts. In the midst of this, the dollar reached a 52-week high of 107.18 this week, or 3.70% up since Trump’s victory on November 5.
Continued selling of equities and bonds by the FPIs has only sharpened the bear pressure on the rupee even further.
In addition to pricey valuations, weak Q2FY25 earnings and allegations of India’s likely slowing GDP growth rate in the same period have exasperated the situation. For this reason, foreign institutional investors have pulled out close to ₹40,000 crore thus far in November, as per the most recent Trendlyne numbers.
FPI for the tenth month in a row areål continues to sell Indian stocks and sold a record amount of ₹1.14 lakh crore worth of stocks.
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Amid these uncertainties, the Indian rupee had declined and has fallen about 0.5 per cent in the first week of November, although the Indian central bank – the Reserve Bank of India – has been intervening in the forex markets as it does regularly – it intervened on Friday as well. Its Asian peers have slid between 0.9% and 2.2% this month.
The research department of SBI in its latest report predicted that, in the second Trump presidency, the rupee may fall to 8-10 per cent against the US dollar by the rupee. The report, titled US Presidential Election 2024: In How Trump 2.0 Impacts India’s and Global Economy, there it was pointed out that the rupee may devalue for a short while before it gets a chance to strengthen against the dollar.
On the other hand, the rupee has deepened its recent free fall, which poses a new problem for the RBI’s fight against inflation. The high import cost which emerges from a weaker currency can lead to price pressures. Another effect of this falling rupee may cause balance margins to shrink in India Inc. because of deteriorating production costs.
This weakness is expected to continue in the short run
Jateen Trivedi, VP Research Analyst, Commodity and Currency, LKP Securities said, “The conflict between Russia and Ukraine has resurfaced and thus contributing to risk-off sentiment.” Domestically, due to the scampering low er US bribery allegations, Adani Group was back in the negative limelight on the secondary market again.
This has fuelled even more the FII outflows giving continuation to capital flight from India’s markets. The rupee’s trading range is expected between 84.35 and 84.65, with continued weakness likely in the near term,” he added.
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