Rupee Rises 23 Paise Against Dollar, Gains Driven By Fed Pause & Foreign Inflows

Mumbai: The Indian rupee gained 23 paise to settle at 84.54 against the US dollar in early trade on Thursday, aided by the US Federal Reserve’s decision to maintain its benchmark interest rates. The move signaled a temporary pause in tightening, giving emerging market currencies like the rupee some breathing space.

At the interbank foreign exchange, the rupee opened at 84.61, touched a high of 84.54 and a low of 84.65 against the greenback. The appreciation comes after a sharp depreciation of 42 paise on Wednesday, when the rupee had closed at 84.77 amid heightened cross-border tensions between India and Pakistan.

Geopolitical Tensions Remain a Concern

Despite the rupee's rebound, forex traders remain cautious due to escalating geopolitical tensions following India's military strikes on terrorist camps in Pakistan and Pakistan-Occupied Kashmir. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, said, “The rupee opened slightly stronger as there was no further escalation reported overnight, though tensions continue to simmer.”

Adding to the uncertainty, a senior US military commander stated that the US is “watching the situation very closely,” highlighting international concerns about the growing India-Pakistan conflict.

Dollar Index, Oil Prices and Market Sentiment

The dollar index, which measures the greenback’s strength against a basket of six major currencies, edged up 0.04 per cent to 99.65. Meanwhile, Brent crude oil futures rose 0.70 per cent to USD 61.65 per barrel, after a previous session drop of over USD 1, amid uncertainties surrounding US-China trade talks.

This volatility in global oil markets poses another layer of risk for the Indian currency, as India remains heavily dependent on oil imports.

RBI OMOs and Market Indicators

Bhansali pointed out that the rupee's movement was also influenced by the Reserve Bank of India’s ongoing Open Market Operations (OMOs), which have contributed to surplus liquidity in the system. This has led to a drop in forward premiums despite a rise in the volatility index.

In domestic equities, the 30-share BSE Sensex declined 50 points to 80,696.78 and the Nifty fell 31.30 points to 24,383.10, indicating subdued market sentiment. However, foreign institutional investors (FIIs) remained net buyers, with a purchase of Rs 2,585.86 crore on Wednesday, which supported the rupee.

(With agency inputs)