Rupee Falls 21 Paise to 94.71 Against US Dollar in Early Trade

The rupee came under fresh pressure in early trade on Thursday, falling 21 paise to 94.71 against the US dollar as a firmer greenback and the US Federal Reserve’s hawkish signal weighed on Asian currencies. The move reflected a broader risk-off tone across global markets, where investors moved back into the dollar after the Fed indicated that another rate increase could still be on the table this year.

At the interbank foreign exchange market, the rupee opened at 94.66 against the dollar and slipped further to 94.71 in early deals. The currency had closed at 94.50 on Wednesday, gaining 10 paise in the previous session. Traders said the weakness was not limited to the rupee, with several regional currencies also losing ground against the dollar.

Dollar strength weighs on rupee

The dollar index, which measures the US currency against a basket of six major currencies, rose 0.14 per cent to 100.23, its highest level in four months. The rise came after the Federal Reserve kept interest rates unchanged, as widely expected, but signalled that at least one quarter-point rate hike may follow later this year.

A hawkish Fed tends to support the dollar because higher US rates can attract global capital into dollar assets. For emerging market currencies such as the rupee, this often means depreciation pressure, especially when investors reduce exposure to riskier assets or wait for more clarity on global interest rates.

“Asian currencies had also weakened considerably, taking the rupee lower this morning. Most asset classes had fallen against the dollar keeping it well bid while the asset class was well offered,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.

The dollar’s strength has become a key near-term factor for currency markets. Even when local fundamentals remain relatively stable, a sharp rise in the greenback can pull emerging market currencies lower. Traders will now watch whether the dollar index sustains its move above the 100 level, which may influence further direction for the rupee.

Crude oil decline offers some relief

Brent crude, the global oil benchmark, traded lower by 1.68 per cent at USD 78.21 per barrel in futures trade. Lower crude prices are usually supportive for India’s external position because the country imports a large share of its energy requirements. A cheaper oil basket can reduce dollar demand from oil importers over time.

However, traders said the immediate effect of crude’s decline was overshadowed by the Fed’s policy signal and the broad rise in the US dollar. The rupee often responds to several moving parts at once, including oil prices, foreign fund flows, equity market sentiment and central bank expectations.

On the domestic equity market front, the Sensex declined 111.23 points to 77,044.39 in early trade. The Nifty also slipped 26.85 points to 24,058.85. Weakness in equities can add to currency pressure if foreign investors turn cautious, although the latest exchange data showed some support from overseas funds.

Foreign institutional investors were net buyers on Wednesday, purchasing equities worth Rs 101.59 crore on a net basis. While the amount was modest, it suggested that foreign flows had not turned sharply negative in the preceding session. Sustained inflows can help cushion the rupee during periods of dollar strength.

Trade talks and geopolitics stay in focus

Currency traders were also tracking diplomatic and geopolitical developments that could influence risk appetite. Reports indicated that the United States and Iran had electronically signed a memorandum of understanding aimed at ending hostilities and creating a framework for negotiations on Iran’s nuclear programme. Negotiators are expected to meet in Geneva on Friday.

“The agreement has improved market sentiment considerably, although President Trump simultaneously warned that military action could resume if Iran fails to comply with the framework,” said Amit Pabari, Managing Director, CR Forex Advisors.

Any easing in West Asia tensions can help global markets by reducing fears of disruption to energy supplies. For India, such developments are important because oil prices and shipping risks can quickly affect the import bill, inflation expectations and currency sentiment. Still, markets are likely to remain cautious until there is clearer progress in negotiations.

Separately, Prime Minister Narendra Modi and US President Donald Trump directed officials to work towards a balanced, mutually beneficial and commercially meaningful trade agreement at the earliest. The Ministry of External Affairs said the direction followed wide-ranging talks between the two leaders on the margins of the G7 Summit.

The meeting was their first in 16 months and came amid efforts to rebuild strained bilateral ties. US Trade Representative Jamieson Greer is expected to visit India next week to take forward discussions on the proposed trade deal. Progress on trade may be watched by exporters, importers and investors for signals on tariff and market access issues.

For now, the rupee’s near-term movement is likely to depend on the dollar’s momentum, Fed-related expectations, crude prices and foreign fund flows. A softer crude market and equity inflows may offer support, but a firm dollar can keep pressure on the currency unless global risk appetite improves meaningfully.