Indian Rupee Retreats Against US Dollar After Previous Session's Rally
The Indian rupee slipped 17 paise on Wednesday, closing at 90.44 against the US dollar, marking a retreat after the currency's substantial 124-paise surge in the previous trading session. This reversal came despite the positive market sentiment generated by news of a finalized trade agreement between India and the United States.
Market Momentum Fades Amid Lack of Sustained Demand
Forex dealers reported that Tuesday's rally lost significant momentum as the market failed to witness follow-through demand, particularly from foreign institutional investors. The absence of large-ticket dollar sales by overseas investors meant the rupee was unable to build upon Tuesday's impressive gains, even with the optimistic backdrop created by the bilateral trade agreement.
KN Dey, a prominent forex consultant, provided insight into the currency's trajectory, stating: "If the US-Iran tensions cool off then the weakness of the Rupee is temporary. The short/medium term range of the Rupee seems to shift towards 89.50 to 90.60/70." Dey further added that there remained a possibility of the rupee briefly touching the 91 level against the dollar.
Global Risk Sentiment Turns Cautious
The rupee's pullback occurred against a cautious global financial backdrop, with risk appetite weakening as equity markets worldwide declined on concerns over AI-led disruption within the technology sector. European stocks retreated from their recent record highs, while US futures remained under pressure following a significant sell-off in software shares. Market volatility persisted across multiple asset classes throughout the trading day.
Traders noted that the rupee's sharp upward movement on Tuesday had already priced in much of the optimism surrounding the India-US trade deal, leaving minimal immediate upside potential without fresh capital inflows. With no major foreign investment flows materializing and global risk sentiment turning increasingly cautious, the Indian currency surrendered part of its previous gains.
Commodity Markets Show Divergent Trends
In related financial developments, commodity markets displayed contrasting movements:
- Gold extended its rebound, posting its most substantial two-day gain in over 17 years
- Oil prices remained elevated after briefly spiking due to fresh geopolitical tensions involving the United States and Iran
Despite Wednesday's decline, the rupee ended the trading session well above last week's levels, indicating that while the currency gave back some of Tuesday's dramatic gains, it maintained a stronger position relative to recent trading ranges. Market participants continue to monitor both domestic economic developments and international geopolitical factors that could influence the rupee's trajectory in coming sessions.
