The Indian rupee experienced significant weakness on Friday, breaching the psychologically important ₹90 mark against the US dollar for the first time in recent sessions. The currency closed at ₹90.20 (provisional), marking a decline of 22 paise from its previous close of ₹89.98. This depreciation came amid a confluence of negative factors including disappointing domestic macroeconomic data and strengthening of the American currency in overseas markets.

Trading Session Performance

During Friday's trading session, the rupee exhibited considerable volatility at the interbank foreign exchange market. The currency opened at ₹89.95 against the dollar and experienced significant pressure throughout the day.

Key Market Factors

Several factors contributed to the rupee's decline, with persistent foreign fund outflows and strong dollar demand from importers significantly impacting investor sentiment. Forex traders noted that the combination of disappointing macroeconomic data and strengthening of the greenback in overseas markets created additional pressure on the currency.

On the domestic macroeconomic front, India's manufacturing sector showed signs of weakening momentum. The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) declined from 56.60 in November to 55.00 in December, representing the weakest improvement in manufacturing activity in two years. The decline was primarily driven by softer expansions in new orders, though the reading remained above the 50-mark threshold indicating continued expansion.

Market Dynamics and Offsetting Factors

Despite the negative pressures, certain factors provided some support to limit the rupee's decline. Weak crude oil prices offered relief, with Brent crude trading 0.58% lower at $60.52 per barrel in futures trade. Additionally, domestic equity markets demonstrated strong performance, providing a cushioning effect against further depreciation.

Central Bank Intervention

Market participants noted that the Reserve Bank of India reportedly intervened in the foreign exchange market by selling dollars through state-owned banks. This intervention helped prevent a more rapid pace of decline in the rupee's value. Forex traders indicated that any further intervention by the RBI may provide support to the currency at lower levels, suggesting continued monitoring of the situation by monetary authorities.

The combination of weak domestic data, foreign fund outflows, and global dollar strength created a challenging environment for the Indian rupee, leading to its breach of the ₹90 threshold against the US dollar.

The Indian Rupee decisively broke below the critical 90-per-dollar mark on Friday, closing at 90.1950 and posting its second consecutive weekly decline amid persistent year-end dollar demand. The currency's movement highlighted the challenges facing the Reserve Bank of India's defense strategy as underlying dollar demand continues to outpace intervention efforts.

Trading Session and Market Dynamics

The rupee opened with modest strength at 89.93 and initially held above the 90 level, supported by dollar sales from state-run banks. However, the currency later slid through this psychological barrier and closed 0.30% weaker at 90.1950, marking its lowest close in two weeks.

Heavy dollar demand from oil importers weighed on the currency throughout the session, while a U.S. holiday on Thursday thinned liquidity and amplified price movements. For the year-crossing week, the rupee fell 0.40% in thin trade, following the previous week's 0.65% decline.

RBI Intervention Strategy Under Pressure

Despite clear signs of Reserve Bank of India intervention through state-run bank dollar sales, the central bank's defense of the 90 level proved insufficient against sustained market pressure. The perception that the RBI wants to prevent a break of 90 - a level that came into focus in the final sessions of the year - has strengthened among market participants.

"Markets will watch closely for signals on how tolerant the RBI remains of the currency moves, scale and timing of its interventions, and the use of instruments such as FX swaps and liquidity operations," said Kunal Sodhani, head of treasury at Shinhan Bank India. He noted that the currency's path will largely be determined by external forces and the RBI's response.

Persistent Dollar Demand Factors

Market participants have continued to test the 90 level, indicating that underlying demand for dollars remains robust despite RBI presence. Several factors contributed to the sustained dollar pressure:

The risk of a wider move past 90 remains on the table, with traders noting that most Asian currencies were on the back foot, offering little support to the rupee. The combination of structural dollar needs and reduced market liquidity created a challenging environment for currency stability.

Market Outlook and Intervention Sustainability

The rupee's decisive break below 90 raises questions about the sustainability of the RBI's defense strategy. Market participants expressed concerns about whether intervention efforts can withstand continued dollar demand pressure, particularly given the thin trading conditions that have characterized recent sessions.

The currency's performance reflects broader challenges facing emerging market currencies amid persistent dollar strength and structural demand imbalances that continue to test central bank intervention capabilities.