The Indian rupee experienced a decline of 7 paise, settling at 85.40 against the US dollar on Friday. This drop followed a day of initial gains and was influenced by increasing geopolitical tensions and a downturn in the domestic equity markets. Forex analysts noted that sentiment was heavily impacted by a recent terror attack in Pahalgam, Jammu & Kashmir, which resulted in the tragic deaths of at least 26 individuals, primarily tourists.

Geopolitical Tensions Impact Currency Markets

The rise in geopolitical strife has significantly affected market dynamics. Following the attack in Pahalgam, traders reported a negative shift in investor confidence, further compounded by a lackluster performance in domestic stocks and a strengthening US dollar. The domestic currency opened the day at 85.17, fluctuating between a high of 85.08 and a low of 85.65 before closing at 85.40.

• Thursday’s Close: The rupee had previously gained 12 paise, closing at 85.33.
• Weekly Performance: The rupee recorded a slight 0.1% drop week-on-week.

Market Insights and Future Projections

Anuj Choudhary, a Research Analyst at Mirae Asset Sharekhan, provided insight into the rupee’s performance. He stated, "The rupee is likely to continue trading with a negative bias due to the escalating geopolitical tensions and a soft tone in domestic markets. Nevertheless, steady Foreign Institutional Investor (FII) inflows and a generally weaker US dollar could mitigate a substantial decline." He anticipates that the USD-INR exchange rate will fluctuate between 85 to 85.90.

Equity Markets Reflect Broader Concerns

On the same day, Indian stock markets faced a downturn, falling sharply compared to other Asian indices. The alarming situation between India and Pakistan has raised concerns, with both nations engaging in various retaliatory measures. India has paused a crucial river water-sharing agreement, while Pakistan has restricted its airspace for Indian airlines, escalating fears of potential military actions reminiscent of the events in 2019.

Dilip Parmar, a Senior Research Analyst at HDFC Securities, commented on the rupee’s volatility: "The depreciation of the Indian rupee follows a period of gains. Domestic equity sell-offs have only worsened the sentiment. The rupee has had a turbulent week due to geopolitical instability and heightened dollar demand from hedgers. Looking ahead, the USD-INR pair will find support at its 200-day moving average of 84.97 and will face resistance around 85.70."

Conclusion

The Indian rupee’s recent performance underscores the intricate relationship between geopolitical events and currency stability. As tensions persist, market observers will be closely monitoring the rupee’s trajectory and the broader economic implications.