The Indian rupee hit an all-time low of 85.10 against the US dollar on Friday, weighed down by persistent dollar strength following robust US economic data that reinforced the Federal Reserve’s hawkish stance.
After surpassing its previous low of 85.0850 on Thursday, the rupee settled at 85.10 by 10:00 AM. While interventions by state-run banks, likely acting on behalf of the Reserve Bank of India (RBI), limited further depreciation, the currency remains under pressure due to several domestic and global factors.
Why Is the Rupee Under Pressure?
1. Slowing Economic Growth and Trade Deficit
India’s economic growth has slowed to a seven-quarter low, and the widened merchandise trade deficit has raised concerns among investors, adding strain to the rupee.
2. Strength of the US Dollar
The US dollar has gained strength following stronger-than-expected GDP growth and a sharp decline in weekly jobless claims. This has been further bolstered by the Federal Reserve’s hawkish outlook, with projections of fewer rate cuts in 2025 amid persistent inflation.
3. Foreign Outflows
Foreign investors sold nearly $500 million worth of Indian stocks on Thursday, contributing to the rupee’s decline.
4. RBI Interventions
Although the RBI has stepped in to stabilize the currency, the rupee’s volatility remains relatively lower than other Asian currencies.
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Market Sentiment and Future Outlook
Kunal Sodhani, Vice President at Shinhan Bank India, commented:
“Higher trade deficit along with slow growth figures puts the rupee on test with outflows from domestic equity markets. Positionally, 84.70 now acts as a good base for USD/INR, while the door remains open for 85.50 levels.”
The dollar index hovered near a two-year high of 108.4, reflecting confidence in the US economy. Investors are now awaiting the US core personal consumption expenditure (PCE) inflation data, a key measure for the Federal Reserve, which could further influence currency markets.
As global economic pressures continue, the rupee is expected to face challenges in the coming weeks.