The Indian rupee weakened sharply by 139 paise to 94.90 against the US dollar in early trade on Monday, as sustained foreign fund outflows and a sell-off in domestic equities weighed on investor sentiment.
Market Movements
At the interbank foreign exchange market, the rupee opened at 94.50 against the greenback, then slipped further to touch 94.90, registering a decline of 139 paise over its previous close. On Friday, the rupee had settled at 93.51 against the US dollar.
Factors Behind the Decline
Forex traders attributed the sharp fall in the rupee to a strong US dollar in overseas markets and persistent selling by foreign institutional investors (FIIs). Additionally, domestic equity markets witnessed heavy selling pressure, with benchmark indices trading deep in the red.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.10% to 104.20. Meanwhile, global oil benchmark Brent crude futures declined 0.30% to USD 75.80 per barrel.
Equity Market Impact
The 30-share BSE Sensex plunged over 1,200 points in early trade, while the broader NSE Nifty slipped below the 22,500 mark. The sell-off was led by banking, IT, and metal stocks amid weak global cues and rising geopolitical tensions.
Foreign institutional investors (FIIs) were net sellers in the capital market on Friday, offloading shares worth Rs 3,200 crore, as per exchange data. This continuous outflow of foreign capital has put additional pressure on the rupee.
Expert Views
Analysts believe that the rupee is likely to remain under pressure in the near term due to the strong dollar and risk-averse sentiment. However, any intervention by the Reserve Bank of India (RBI) could provide some support to the domestic currency.
The RBI has been actively managing the rupee's volatility by intervening in the forex market through dollar sales. Market participants are closely watching the central bank's actions for any signs of intervention to stem the rupee's slide.
Global Context
The rupee's fall comes amid a broader strengthening of the US dollar against major currencies, as expectations of higher interest rates in the United States continue to drive demand for the greenback. The US Federal Reserve's hawkish stance has led to a rally in the dollar index, putting emerging market currencies like the rupee under pressure.
Additionally, concerns over global economic slowdown and geopolitical uncertainties have fueled risk aversion, prompting investors to seek safe-haven assets like the US dollar.
