The Indian rupee slipped to another fresh low of 84.50 against the US dollar in trade on November 22 as the greenback’s steady rise, persistent selling by foreign portfolio investors (FPIs), and escalating geopolitical tensions continued to weigh heavily on the local currency.
The US Dollar index, which tracks the dollar’s performance against six major currencies, has gained 3.10% this month so far, nearing its highest level in two years. The dollar’s strength has been fueled by expectations that President-elect Donald Trump’s policies could reignite inflation and reduce the likelihood of future US interest rate cuts.
This momentum is further supported by robust US economic data and comments from Federal Reserve officials indicating no urgency to lower rates. Amid this, the dollar climbed to a 52-week peak of 107.18 this week, surging more than 3.70% since Trump’s victory on November 5.
The sustained selling by FPIs in Indian equities and bonds has further intensified the downward pressure on the rupee.
Beyond concerns over expensive valuations, weak Q2FY25 earnings and reports of a potential slowdown in India’s GDP growth during the same quarter have dampened investor sentiment. As a result, FPIs have withdrawn nearly ₹40,000 crore from Indian equities in November so far, according to the latest Trendlyne data.
FPIs maintained their selling streak in October, offloading a record ₹1.14 lakh crore worth of Indian stocks.
According to the latest media reports, Russia fired a missile at the Ukrainian city of Dnipro on Thursday in response to the US and UK's decisions allowing Kyiv to strike Russian territory with advanced Western weapons.
Amid these uncertainties, the rupee has tumbled nearly 0.5% so far in November, although the Reserve Bank of India's routine interventions, including on Friday, have limited the decline. Its Asian peers have lost between 0.9% and 2.2% this month.
In its latest report, SBI research forecasted that the rupee may depreciate by 8–10% against the US dollar during a second Trump presidency. The report, titled US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy, highlighted that the rupee could experience a brief period of depreciation against the dollar, followed by potential appreciation.
Meanwhile, the sharp depreciation of the rupee presents a fresh challenge for the RBI's battle against inflation. A weaker currency drives up import costs, potentially fueling price pressures. The falling rupee may also impact India Inc.’s profitability due to increased production costs.
Jateen Trivedi, VP Research Analyst, Commodity and Currency, LKP Securities, said, "Geopolitical tensions between Russia and Ukraine have resurfaced, adding to global risk aversion. Domestically, the Adani Group found itself in the spotlight for negative reasons once again, with allegations of US bribery creating negative sentiment in the secondary markets."
"This has further fueled FII outflows, continuing the trend of capital flight from Indian 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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