Rupee Trades in Tight Range as Pressure Mounts Against US Dollar

New Delhi : The Indian rupee continued its range-bound trade on Monday, depreciating by 5 paise to 86.76 against the US dollar in early trading. Forex traders attributed this weakness to a combination of significant foreign fund outflows and a negative trend in domestic equities. The rupee is currently facing a negative bias, as foreign banks engaged in extensive dollar buying and importers scrambled to secure dollars, fearing further depreciation amid ongoing global economic uncertainties.

According to Pranit Arora, Founder and CEO of Univest, the Indian rupee has been under significant pressure in recent days, reaching record lows due to a series of global and domestic factors. He highlights five main drivers behind the rupee’s downward trend. Market volatility has heightened due to concerns over potential US tariffs and other trade-related tensions. These global uncertainties are having a ripple effect on emerging market currencies like the rupee, contributing to its decline.

India’s inflation has recently fallen to a five-month low of 4.31% in January 2025. While this is generally positive, it has fueled expectations that the Reserve Bank of India (RBI) may cut interest rates further. Lower interest rates can lead to a weaker rupee, as they make Indian assets less attractive to foreign investors.

India is showing signs of an economic slowdown, dampening investor sentiment and leading to increased speculation that the RBI might implement additional monetary easing. This adds to concerns about the rupee’s long-term stability, as economic growth plays a crucial role in supporting the currency.

Foreign investors have been pulling capital from Indian markets, driven by global uncertainties and the appeal of higher returns in the US. This reduction in foreign investment has compounded the pressure on the rupee, as fewer funds flow into the country.

The US dollar has gained strength recently, spurred by rising US inflation and the possibility of more rate hikes by the Federal Reserve. A stronger dollar puts additional pressure on the rupee, as the greenback’s strength typically leads to a relative depreciation of other currencies