The Indian rupee faces mounting pressure as political tensions in the United States add another layer of uncertainty to an already challenging environment for the currency. The rupee opened Monday in the 90.22-90.28 range against the US dollar, following a 0.16% decline on Friday that saw it settle at 90.16.
RBI Interventions Fail to Provide Lasting Support
Despite the Reserve Bank of India's efforts to support the currency through two separate interventions last week, the rupee has been unable to sustain any meaningful recovery. The central bank's actions were specifically aimed at breaking the momentum in speculative long dollar positions that had accumulated as the USD/INR pair drifted higher.
| Intervention Impact: |
Details |
| Initial Rally: |
Currency strengthened to 89.75 |
| Outcome: |
Rally subsequently fizzled out |
| Current Level: |
90.16 (Friday close) |
| Monday Opening: |
90.22-90.28 range |
The temporary rally to 89.75 following the intervention proved short-lived, as multiple headwinds continued to weigh on the currency. Market participants noted that equity outflows, importer hedging activities, and the dollar's broad-based strength effectively diluted the impact of the RBI's market operations.
Multiple Pressures Weighing on Currency
Several factors are contributing to the rupee's persistent weakness. Foreign portfolio investors have maintained their selling pressure on Indian equities, while importers continue their hedging activities. The dollar's strength across global markets has added to the challenges facing the Indian currency.
"What we saw last week really underscores the kind of pressure it (the rupee) is under right now," a currency trader at a foreign bank observed. "More likely than not, we test 90.50 this week, and I doubt the RBI will repeat the kind of intervention it carried out last week."
US Political Tensions Add Fresh Uncertainty
The rupee now faces additional uncertainty stemming from escalating tensions between US President Donald Trump and Federal Reserve Chair Jerome Powell. US prosecutors have opened a criminal investigation into Powell, with the Fed chairman accusing the administration of using legal threats to influence monetary policy.
These developments come against the backdrop of ongoing disagreements between Powell and Trump over the president's repeated calls for lower interest rates. The political tensions have overshadowed other economic data, including the US jobs report released on Friday, which showed fewer job additions than expected in December but did little to alter expectations around the Fed's rate-cut trajectory.
Market Indicators and Foreign Investment Flows
Key market indicators reflect the current environment of uncertainty. The dollar index stood at 98.95, while Brent crude futures gained 0.1% to reach $63.40 per barrel. The ten-year US Treasury note yield was positioned at 4.17%.
| Foreign Investment Flows (Jan 8): |
Amount |
| Equity Outflows: |
₹3,515.00 crores net selling |
| Bond Inflows: |
₹619.00 crores net buying |
The mixed foreign investment pattern, with continued equity selling offset partially by bond purchases, reflects the complex dynamics currently influencing Indian financial markets. The substantial equity outflows continue to exert downward pressure on the rupee, while bond inflows provide some support to the currency.
Outlook Remains Challenging
With multiple headwinds persisting and fresh uncertainties emerging from US political developments, the rupee's near-term outlook remains challenging. Market participants are closely monitoring both domestic intervention policies and international developments that could influence currency movements in the coming sessions.
19
