The Indian rupee dropped against the US dollar on Thursday, almost wiping out gains from the
central bank’s measures to attract dollar inflows, as weak Asian
cues and persistent dollar demand from oil firms weighed.
The rupee opened lower at 95.52 per U.S. dollar and
stayed under pressure since then, with bankers pointing to
sustained dollar demand, particularly from oil companies,
alongside usual mid-month flows.
The currency ended at 95.76, down 0.5%, barely holding on to
any of the gain notched on Friday.
“The dollar had weakened post the release of yesterday’s
U.S. inflation data, but reversed its weakness after news of
escalation of conflict between U.S. and Iran,” Dhaval Shah,
founder and managing director, De-Risk Forex Consultancy.
“Despite such strikes and a lapse of the ceasefire, we
assess the war to be on a de-escalatory path as indicated by
neutral reaction of many financial assets, mainly oil.”
U.S. strikes on Iran overnight dented hopes of a broader
resolution to the conflict. In response, Iran said it would shut
the Strait of Hormuz and conducted counter-attacks on U.S.
military targets in Kuwait and Bahrain.
Iran closing the strait is a reversal from recent weeks,
when Iran had allowed limited transit for ships from friendly
nations.
Benchmark Brent crude rose more than 2% earlier in the day
before trimming gains to trade marginally lower.
Shah said the recent upmove in USD/INR was a corrective
rally, and added that a reversal will likely begin, with the
pair easing to around 93.50 levels, supported by favourable RBI
measures.
U.S. inflation data had limited impact on currency moves.
Headline inflation rose to 4.2% on-year, its highest in over
three years, while a softer-than-expected core reading kept
near-term Federal Reserve rate expectations largely unchanged.