USD vs INR: Rupee Hits Lifetime Low Amid Volatility and Economic Uncertainty

The Indian rupee traded at 85.55 against the US dollar during Monday’s afternoon session, reflecting a 0.20% decline from its previous close. This downturn was driven by foreign fund outflows, a stronger US dollar (USD) supported by month-end demand, and mounting concerns about India’s economic growth slowdown and widening trade deficit.

Market Volatility and December Expiry Impact

The rupee experienced significant volatility on Friday and opened weaker on Monday. A surge in dollar demand due to the expiry of December currency futures and maturing forward positions amplified the downward pressure. Friday’s trading session marked the rupee’s steepest fall in nearly two years, plunging to 85.80, its lifetime intraday low. A suspected intervention by the Reserve Bank of India (RBI) helped stabilise the rupee, which closed at 85.48, still a record low.

Global Factors and Dollar Strength

Uncertainties surrounding Donald Trump’s return to power and global economic stability continue to drive market sentiments. The Dollar Index, measuring the greenback’s strength against six major currencies, remained elevated at 108, indicating sustained strength. Low trading volumes during the holiday season in markets like the UK and Europe also contributed to volatility in emerging market currencies, including the rupee.

Forex Reserves and RBI’s Role

India’s foreign exchange reserves fell sharply by USD 8.478 billion to USD 644.391 billion as of December 20, according to RBI data. This marks a continued decline from the USD 652.869 billion reported a week earlier. Factors contributing to the decline include forex market interventions and revaluation losses. The reserves had previously reached an all-time high of USD 704.885 billion at the end of September.

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