The Indian rupee depreciated by 45 paise to 94.67 against the US dollar in early trade on Monday, as escalating geopolitical tensions in the Middle East dampened investor sentiment. Forex traders noted that the rupee's decline was driven by renewed hostilities between Iran and the United States, particularly after Iran accused Washington of violating a ceasefire agreement. The US carried out retaliatory strikes in the Strait of Hormuz and civilian areas, while President Donald Trump maintained that the ceasefire remained in effect.
The development injected uncertainty into global financial markets, prompting a flight to safe-haven assets. The rupee opened weaker at 94.50 against the greenback and touched a low of 94.67, compared to its previous close of 94.22. The domestic currency has been under pressure due to a combination of factors, including rising crude oil prices, foreign fund outflows, and a strong dollar overseas.
Geopolitical Tensions Weigh on Sentiment
The fresh flare-up in the Middle East has raised concerns about supply disruptions in the oil-rich region. The Strait of Hormuz, a critical chokepoint for global oil shipments, witnessed military activity, further stoking fears of supply constraints. Analysts said that any escalation could push crude prices higher, which would widen India's trade deficit and exert additional pressure on the rupee.
Impact on Domestic Markets
Meanwhile, domestic equity markets opened on a cautious note, with the benchmark Sensex and Nifty trading in negative territory. Foreign institutional investors remained net sellers in the capital markets, adding to the rupee's woes. Traders are now awaiting cues from the Reserve Bank of India's monetary policy meeting scheduled later this week.
The rupee's fall comes amid a broader trend of weakness in emerging market currencies against the US dollar. The dollar index, which measures the greenback against a basket of six major currencies, held near its recent highs on expectations of further interest rate hikes by the US Federal Reserve.
Market participants will closely monitor developments in the Middle East and any potential intervention by the RBI to stem the rupee's slide. The central bank has been known to step in through dollar sales to curb volatility, but its ability to defend a specific level remains limited given the global headwinds.
