Indian Rupee Under Pressure: Dollar Rally and Capital Outflows Weigh

The Indian rupee continues to face challenging times as the dollar is on the rise and there is uncertainty about the future course of interest rate cuts in the US. Additionally, ongoing capital outflows are a burden on the local currency. Forecasts suggest that the rupee's rate against the US dollar will open at approximately 84.48-84.49 on Friday. Already on Thursday, the rupee fell to a record low of 84.4925 per US dollar, mainly attributed to capital outflows from Indian equities. Foreign investors withdrew over 600 million dollars net from Indian stocks on that day. The Reserve Bank of India (RBI) intervened to curb the rupee's losses and alleviate the pressure caused by the outflows. The dollar index reached its highest level in over a year on Thursday, but then slightly eased to 107.06 by the close of Asian trading. The dollar received additional strength from statements by some US Federal Reserve representatives suggesting that the pace of interest rate cuts might slow down. The latest labor market data in the US, showing a decline in new claims for unemployment benefits to a seven-month low, indicate a robust US economy. Interest rate differentials, along with geopolitical tensions, continue to play a role in favor of the dollar, as noted by MUFG Bank. The geopolitical situation intensified after Russia fired a missile at the Ukrainian city of Dnipro in response to support for Ukraine from the US and the UK. Meanwhile, mixed trends were observed in Asian currencies: the Thai baht lost 0.2%, while the Korean won, the Indonesian rupiah, and the Philippine peso slightly gained.