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Forex traders noted that expectations of an RBI rate cut in the upcoming MPC meeting—driven by easing food and energy prices—are dampening short-term sentiment for the rupee, despite the potential for such a move to support long-term economic growth.

According to forex traders, escalating geopolitical tensions between India and Pakistan have triggered a risk-off sentiment in the market, contributing to the rupee's decline. Additionally, rising demand for the US dollar has further dampened investor confidence.

Forex traders said India is presenting a picture of quiet strength. The Reserve Bank of India, in its recent bulletin, emphasised India's growing economic resilience, driven by strong macro fundamentals, diverse trade ties, and rising global interest in Indian markets.

Forex traders noted that market sentiment improved after Donald Trump, on Tuesday, stepped back from his earlier threats to dismiss Federal Reserve Chair Jerome Powell, following days of escalating criticism over Powell’s reluctance to cut interest rates. Trump also hinted at the potential for reduced tariffs on Chinese goods.

Forex traders noted that encouraging macroeconomic data, combined with the 90-day relief from US reciprocal tariffs, spurred foreign investors to buy into domestic equities, which in turn boosted the local currency.

In early trade at the interbank foreign exchange, the rupee opened at 86.22 against the US dollar, marking a gain of 46 paise from its previous close. It later strengthened further to 86.17. On Wednesday, the local currency had settled at 86.68 against the greenback.

Forex traders noted that even with a sharp decline in crude oil prices and a weakening US dollar, concerns over a potential global trade war continued to spark fears of an economic downturn, triggering foreign fund outflows and leaving stock markets in a state of shock.

Forex traders said that despite a sharp drop in crude oil prices and a weakening US dollar, the domestic currency remained under pressure due to continuous foreign fund outflows triggered by global market sell-offs.

The rupee’s rebound has been driven primarily by a decline in crude oil prices and the weakening of the US dollar in global markets. According to forex traders, the greenback lost ground due to growing concerns over inflationary pressures, triggered by tariffs and the looming threat of a potential recession in the United States.

Forex traders attributed the rupee’s gains to FPIs becoming net buyers in equities for the second time this week while making substantial investments in debt. At the interbank foreign exchange, the rupee opened at 86.26 against the US dollar, strengthened further, and reached 86.19, marking an appreciation of 17 paise from its previous close.

The rupee dropped 5 paise to 85.69 against the US dollar in early trade, the first session of 2025

Forex traders noted that the rupee remains stable within a narrow range due to active intervention by the Reserve Bank of India (RBI). In the interbank foreign exchange market, the rupee opened at 83.97 against the US dollar, up by 2 paise from its previous close.

Forex traders noted that foreign institutional inflows, along with notable corrections in asset classes such as the dollar index and crude oil prices, supported the rupee. Additionally, the Reserve Bank's active intervention helped maintain the rupee within a narrow range.

The dollar index, measuring the greenback's strength against six major currencies, fell 0.14% to 101.67. Meanwhile, Brent crude, the global oil benchmark, dropped 0.62% to 73.29 in futures trading.

Forex traders noted that foreign fund outflows from Indian equities, triggered by the government's capital gains tax hike, pressured the local currency and limited its gains.

Forex traders noted that the domestic unit was dragged down by a volatile equity market and continued outflow of foreign funds.

Forex trader said, however, the Indian currency was under pressure due to subdued equity market sentiment and elevated level of crude oil prices.

Analysts: Foreign Investors' Selling Pressure and High Oil Prices Hinder Rupee's Sharp Gain

Forex traders said a strong American currency and elevated crude oil prices, however, weighed on the local unit