The Indian rupee has shown varied performance against major global currencies, with significant movements observed in the forex market. While facing challenges against some currencies, it has demonstrated strength against others, reflecting the complex dynamics of international finance.

Performance Against Major Currencies

US Dollar

• The rupee declined approximately 3% against the US dollar.
• This represents the steepest drop among Asian currencies.
• The decline was cushioned by a 10% year-to-date slip in the dollar index.

Euro and British Pound

• The rupee fell nearly 14% against the euro.
• It declined 10% against the British pound.
• These larger drops are attributed to policy shift expectations in Europe and the UK.

Japanese Yen

• Interestingly, the rupee gained nearly 10% against the Japanese yen.
• This marks the strongest performance among Asian currencies.

Foreign Investment Flows

Foreign Portfolio Investment

• Foreign portfolio investors withdrew nearly $16 billion from Indian equities.
• Reasons cited include stretched valuations and slowing earnings growth.

Bond Inflows

• Bond inflows dropped to $5.5 billion, down from $17 billion in the previous period.

Foreign Direct Investment

• Foreign direct investment rose 15% to $18.6 billion in the first quarter.

Monthly Performance

• The rupee declined in every month except March and April.
• July recorded the sharpest fall of 2.1%.
• Despite an S&P Global sovereign credit rating upgrade in August, the rupee still experienced a 0.7% decline that month.

Recent Developments

Rupee's Recent Strength

• In a recent trading session, the rupee gained 5 paise against the US dollar.
• The domestic currency opened at 88.11 and improved to 88.10 against the greenback.

Factors Influencing Rupee's Performance

1. FII Inflows:

   • Foreign institutional investors (FIIs) purchased equities worth Rs 2,050.46 crore.
   • This influx of foreign capital has provided support to the rupee.

2. US-India Trade Talks:

   • US President indicated ongoing trade negotiations with India.
   • Potential progress in bilateral trade relations could impact the rupee.

3. Global Factors:

   • The dollar index declined 0.45% to 97.90, bolstering the rupee's position.

4. Oil Prices:

   • Rising crude oil prices have capped further gains in the rupee.
   • Brent crude traded 0.86% higher at $66.96 per barrel.
   • Geopolitical tensions, including Israel's attacks on Hamas leadership in Qatar, influenced oil prices.

Domestic Equity Markets

Indian stock markets displayed positive momentum:

The upward movement in domestic equities could potentially attract more foreign investments, supporting the rupee.

Analyst Projections

• Analysts expect limited further downside for the rupee.
• BNP Paribas strategist Chandresh Jain projects the rupee to trade in the 87-89 range.
• Another 2-3% move in the dollar is anticipated.

As global and domestic factors continue to influence currency movements, market participants will closely monitor developments in US-India trade talks, oil price fluctuations, and FII flows for cues on the rupee's future trajectory.

The Indian rupee has reached a historic low, touching 88.36 against the US dollar, as concerns over potential US tariffs weigh on growth prospects and portfolio flows. The week concluded with the rupee settling at 88.27, marking a significant depreciation for the Indian currency.

Bond Yields Decline Sharply

In a parallel development, Indian government bond yields experienced a substantial decline. The benchmark 10-year bond yield dropped by 13 basis points to 6.47%, recording the most significant weekly decrease in four months. This sharp fall in yields was primarily attributed to weak US jobs data, which has fueled expectations of a potential 50-basis-point rate cut by the Federal Reserve.

Goldman Sachs Revises Rupee Forecast

Responding to the currency's movement, Goldman Sachs has adjusted its USD/INR forecasts upward. The investment bank now projects the exchange rate at:

These projections indicate an expectation of continued pressure on the rupee in the near to medium term.

Government and RBI Response

Finance Minister Nirmala Sitharaman has moved to reassure markets, affirming that the government will meet its fiscal deficit target without altering the borrowing calendar. This statement aims to instill confidence in the face of the currency's depreciation.

Meanwhile, the Reserve Bank of India (RBI) has been actively intervening in the forex market, conducting dollar-selling operations to curb the rupee's losses. However, analysts anticipate that the central bank will exercise caution in deploying its foreign exchange reserves for currency support.

Market Implications

The combination of a weakening rupee and declining bond yields presents a complex scenario for investors and policymakers alike. While a weaker currency can potentially boost exports, it also raises concerns about imported inflation and its impact on the overall economy.

The market will be closely watching for any further interventions from the RBI and policy signals from the government as they navigate these challenging currency dynamics. Additionally, global factors, particularly US economic data and Federal Reserve decisions, will continue to play a crucial role in shaping the rupee's trajectory in the coming weeks.