The Indian rupee commenced the new trading week on a soft footing, depreciating against the US dollar amid persistent global uncertainties. The local currency extended its downward trajectory from the previous year, reflecting ongoing pressures in the foreign exchange market.
Opening Weakness and Key Drivers
In early trade on Monday, the rupee slipped by 4 paise to 90.24 against the American dollar. This decline followed a significant drop last Friday, where the currency had closed 22 paise lower at 90.20, breaching the psychologically important 90-mark. The primary trigger for the rupee's weakness was heightened geopolitical uncertainty, particularly surrounding US intervention in Venezuela, which bolstered demand for the safe-haven US currency globally.
Traders pointed to a combination of domestic and international factors sustaining the muted sentiment. Disappointing macroeconomic data and a strengthening US dollar in overseas markets set a negative tone. Furthermore, the rupee was pressured by continuous withdrawal of foreign portfolio investments (FPI) and robust dollar demand from importers looking to hedge their positions.
Limiting Factors and RBI's Role
Despite the downward pressure, the rupee's fall was cushioned by two positive developments. Softer crude oil prices provided some relief, as India is a major oil importer. Additionally, a sharp rise in domestic equity markets helped limit the currency's downside. Market participants also noted that potential intervention by the Reserve Bank of India (RBI) could offer support to the rupee if it depreciates to lower levels, preventing excessive volatility.
2025 Performance and Future Outlook
The rupee's early 2025 movement continues a weak trend from the previous year. In 2025, the currency depreciated by almost 5% against the US dollar, marking its poorest annual performance since 2022. This underperformance occurred despite a generally softer US dollar and gains registered by most other global currencies.
A recent report by SBI Funds Management identified key reasons for the rupee's lag. These include muted foreign portfolio investor (FPI) inflows, weak export momentum, and heightened hedging demand from importers. The report highlighted that foreign investors withdrew close to $18 billion from Indian equities in 2025. They cited earnings downgrades for Indian companies, limited exposure to the artificial intelligence-led global growth theme, and more attractive opportunities in other emerging markets as reasons for the pullback.
Looking ahead, SBI Funds Management anticipates further pressure on the Indian currency. The bank expects the rupee to decline by around 2% in the next financial year, with the exchange rate potentially hovering near 92 against the US dollar.
