USD/INR: Indian Rupee Drops to 2-Mth Low on June 19 Amid Rising Crude Prices, Middle East Tensions

The Indian Rupee posted a significant decline on Thursday, falling to 86.95 per US Dollar, its weakest level in two months. The sharp depreciation was primarily triggered by a spike in global crude oil prices amid intensifying conflict between Iran and Israel, which has now entered its seventh day.

Market participants are increasingly cautious over fears of direct US involvement in the conflict, a scenario that could lead to broader geopolitical and economic consequences worldwide. The deteriorating risk sentiment has weakened emerging market currencies, including the Rupee.

Rising Crude Prices Put Pressure on Oil-Importing Economies

Crude oil prices have surged amid heightened geopolitical tensions, posing a serious threat to countries like India, which are heavily reliant on oil imports. A rise in oil prices directly worsens India’s trade balance and inflation outlook, making the Rupee particularly vulnerable.

Investors moved away from riskier assets and currencies, opting instead for safer bets like the US Dollar. This risk-off sentiment is reflected in the US Dollar Index (DXY) climbing to a fresh weekly high near 99.10, further pressuring the INR.

US Fed Maintains Rates, Signals Cautious Outlook

The Federal Reserve, at its policy meeting on Wednesday, left interest rates unchanged at 4.25%–4.50%, marking the fourth consecutive time rates have been held steady. While the Fed still anticipates two rate cuts in the current cycle, it raised its longer-term rate guidance for 2026 and 2027, signaling continued caution over inflation risks.

Fed Chair Jerome Powell, in his post-meeting remarks, welcomed recent signs of cooling inflation but flagged concerns about potential tariff-related inflation in the coming months, further dampening investor optimism.

Volatility Likely to Persist

The dual impact of external shocks—rising energy costs and global risk aversion—may continue to drive volatility in the USD/INR pair, as per news reports.

Emerging market currencies, especially those of oil-importing nations like India, are expected to stay on edge unless there is meaningful de-escalation in the Middle East and greater clarity from central banks on inflation and rate trajectories.

Read More: RBI Foreign Exchange Reserves: Gold Holdings Rise 26% Since FY21.

Conclusion

The recent drop in the Indian Rupee highlights the currency's sensitivity to external factors such as geopolitical tensions and commodity price fluctuations. As global markets react to rising crude oil prices and uncertain central bank guidance, the USD/INR pair may continue to witness short-term volatility.

Going forward, currency movements will likely depend on how geopolitical developments unfold and how major economies manage inflation and interest rate expectations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.