The rupee witnessed its worst session in over two years on Thursday, coming underneath intense stress resulting from escalating geopolitical tensions between India and Pakistan underneath the continuing ‘Operation Sindoor’. The home forex took a pointy hit, closing 89 paise decrease at 85.72 towards the US greenback.
This vital depreciation of over 1 per cent marks the rupee’s worst day since February 6, 2023. The rupee had closed at 84.83 towards the dollar on Wednesday. The heightened tensions have led to a surge in danger aversion, impacting the forex markets and ensuing within the rupee’s sharp decline.
Why is the rupee underneath stress
Analysts mentioned the rupee’s decline was attributed to heightened geopolitical dangers following India’s navy strikes in Pakistan, which raised worries about potential escalation within the area. The forex market got here underneath stress after Pakistan tried to focus on a number of Indian navy websites utilizing drones and missiles, a transfer thwarted by India’s defence programs. Other than the geopolitical stress, a stronger US greenback and rising crude oil costs additional weighed on the sentiment.
Jateen Trivedi, analysis analyst, LKP Securities, mentioned experiences of drone assaults and retaliatory strikes over the previous 24 hours have heightened geopolitical uncertainty, triggering a risk-off sentiment. “If the state of affairs worsens, the rupee could face additional stress, with decrease ranges of 86.00-86.50 doubtlessly coming into play,” he mentioned.
Dilip Parmar, analysis analyst, HDFC Securities, mentioned uncertainties surrounding Trump’s insurance policies have additionally heightened volatility within the foreign exchange market this 12 months. Moreover, the decline in US Treasury yields has contributed to the weakening of the greenback in latest days.
The rupee had come underneath stress on Wednesday additionally following India’s precision navy strikes on terror hubs in Pakistan and Pakistan-occupied Kashmir.
India VIX, the benchmark indicator of market volatility derived from choices buying and selling, surged 10 per cent to 21.01 on Thursday, reflecting heightened investor anxiousness. The sharp rise within the so-called “concern gauge” was pushed by escalating market uncertainty, compounded by volatility sometimes related to the weekly index expiry.
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Rupee could profit from tailwinds
The rupee is prone to stay underneath stress resulting from robust US greenback and the persevering with navy tensions between India and Pakistan. Any additional escalation may drive extra weak spot. Nevertheless, FII inflows into the inventory market could supply some assist at decrease ranges.
The rupee had gained floor final week within the wake of inflows from international traders and bullish inventory markets. International traders, who withdrew funds from the Indian markets between October 2024 and February 2025, had pumped Rs 9,647 crore into the inventory market until Could 7. Going ahead, with the US Federal Reserve preserving the charges unchanged, native inventory markets and the rupee are anticipated to learn from world equities rally in addition to home tailwinds akin to hopes of coverage easing from the RBI, better-than-expected This autumn earnings, depressed oil costs and expectations of a commerce take care of the US.