The Indian rupee experienced its most significant single-day decline in nearly three months, falling 61 paise against the US dollar due to strong dollar demand and foreign investor selling.
Rupee Takes a Big Hit
On Wednesday, the domestic currency closed at 87.43 against the US dollar. This marked a considerable drop of 61 paise from its previous close of 86.82, making it the sharpest fall since May 8, when it tumbled 89 paise.
During the day, the rupee traded between a high of 87.0663 and a low of 87.5125. Over the past 11 trading sessions, the currency has depreciated by about 2%, or 161 paise, amid rising market uncertainties.
The Trump Tariff Effect
A major factor contributing to the rupee’s decline was comments from US President Donald Trump. He suggested that India could face new tariffs, potentially ranging from 20-25 percent.
Later in the day, after Indian market hours, Trump formally announced a 25 percent tariff on India, effective August 1. He also mentioned an unspecified penalty related to India’s imports of energy and defence goods from Russia, further adding to market jitters.
Foreign Funds Pull Back
Another key reason for the rupee’s slide was aggressive selling by foreign portfolio investors (FPIs). In just the past week, FPIs have sold Indian shares worth Rs 16,370 crore, which puts significant pressure on the rupee as these investors convert their rupee holdings into dollars.
Experts also pointed to increased month-end demand for dollars from various entities, which naturally pushed the US currency stronger against the rupee.
RBI’s Absence and Market Reaction
Analysts noted that the Reserve Bank of India (RBI) was notably absent from the forex market on Wednesday. The RBI typically intervenes to manage volatility, not to target a specific exchange rate.
Once the rupee breached the critical psychological level of 86.9, it triggered higher demand for dollars from importers, including large oil companies. This also led to a wave of “short covering,” where traders who had bet on a stronger rupee had to buy dollars to close their positions, intensifying the fall.
What’s Next for the Rupee?
Market participants also kept a close eye on the US Federal Reserve’s policy announcement, which was expected later on Wednesday.
Looking ahead, analysts suggest that the immediate support level for the rupee is now around 87, with resistance at 87.70. If the rupee breaks the 87 level, the next significant resistance could be seen at 88. The currency is expected to trade within this broader range in the near term.
- The rupee recorded its largest single-day fall in nearly three months, closing at 87.43 against the dollar.
- Comments from Donald Trump about potential new tariffs on India significantly impacted market sentiment.
- Aggressive selling by foreign portfolio investors (FPIs) and strong month-end dollar demand were major contributors to the decline.
- The Reserve Bank of India’s absence from the forex market also played a role as key psychological levels were breached.
The recent depreciation highlights the rupee’s sensitivity to global geopolitical developments and capital flows, with investors now watching for further guidance from central banks and trade policies.
