The Indian rupee is likely to open slightly stronger on Thursday, even as traders remain cautious due to rising geopolitical tensions between India and Pakistan. Meanwhile, the U.S. dollar continues to hold firm following the Federal Reserve’s recent policy stance.
Let’s take a closer look at what’s moving the rupee and how the markets are responding.
Recent Rupee Movement: What Happened?
On Wednesday, the Indian rupee saw its steepest one-day fall in nearly a month. This came after India launched missile strikes on targets in Pakistan and Pakistan-administered Kashmir, escalating tensions across the border.
Key reasons for the drop:
-
Rising military tensions between India and Pakistan
-
Investor anxiety about potential escalation
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Market reactions to geopolitical developments
Pakistan’s Defence Minister, Khawaja Muhammad Asif, said the country would retaliate by targeting military installations, not civilians. While this cooled immediate panic, markets are still alert.
A currency trader at a leading bank mentioned:
“If Pakistan follows through and hits India, the rupee will come under renewed pressure.”
Opening Outlook for the Rupee
Despite recent tensions, the rupee is expected to show modest gains in early trading—unless a sudden military escalation occurs.
Indicator |
Value |
|---|---|
Expected Rupee Opening |
₹84.72 – ₹84.74 per U.S. dollar |
Previous Session Close |
₹84.8250 per U.S. dollar |
1-month Non-Deliverable Forward Rate |
₹84.90 |
Onshore One-Month Forward Premium |
16.5 paise |
Foreign Investors Remain Optimistic
Interestingly, foreign investors continue to support the Indian equity market, even amid the geopolitical tension.
Capital Flows (May 6 data):
-
Net purchase of Indian equities: $474.5 million
-
Net sale of Indian bonds: $84.9 million
A market observer noted:
“The flows reflect a view that the situation, while tense, is unlikely to spiral into a broader conflict.”
U.S. Dollar Strength Impacts Asia
While South Asia faces political uncertainty, currencies across Asia also reacted to global monetary signals. The U.S. dollar is gaining strength after the Federal Reserve struck a cautious tone on the economy.
Global Market Snapshot:
Indicator |
Value |
|---|---|
U.S. Dollar Index |
99.66 |
Brent Crude Futures |
$61.3 per barrel (+0.4%) |
U.S. 10-Year Note Yield |
4.28% |
Offshore Chinese Yuan |
Fell past 7.2350/dollar |
The Fed held interest rates steady, as expected, but flagged rising risks of both inflation and unemployment, putting the central bank in a tough spot.
MUFG Bank stated:
“There will be policy trade-offs if both unemployment and inflation rise, putting the Fed in a difficult predicament.”
FAQs
Q1. Why did the rupee fall recently?
The rupee dropped sharply due to geopolitical tensions stemming from India’s missile strikes and Pakistan’s warning of retaliation.
Q2. Will the rupee recover in the coming days?
A recovery is possible if tensions de-escalate. However, any retaliatory action from Pakistan could lead to renewed currency pressure.
Q3. Why is the U.S. dollar gaining strength?
The dollar is rising due to safe-haven demand and cautious signals from the U.S. Federal Reserve about inflation and employment.
Q4. Are investors worried about an India-Pakistan war?
While the situation is tense, foreign investors are still buying Indian stocks, indicating they don’t expect a full-scale conflict.
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