The Indian rupee experienced a remarkable surge on Friday, climbing 64 paise or 0.74% to settle at 86.0537 against the US dollar. This impressive gain marks the largest increase in two months and was largely influenced by a decline in the dollar index, which has hit a near two-year low. Additionally, robust performance in the equity market played a pivotal role in bolstering the local currency.

Factors Behind the Rupee’s Rise

The rupee’s recent rise is a refreshing change after three consecutive days of decline. The uptick was largely attributed to:

• Strength in regional currencies: Major Asian currencies showed positive movement, contributing to the rupee’s performance.
• Improved risk appetite: Sentiments in the market shifted positively, encouraging investment.

Dilip Parmar, a senior research analyst at HDFC Securities, noted, “The rupee appreciated following stronger regional currencies and an overall risk-on sentiment. The US government’s recent decision to pause reciprocal tariffs for 90 days, excluding China, also weighed on the dollar.”

Insights on the Dollar Index

The dollar index, which measures the strength of the US dollar against a basket of six other currencies, fell by 1.52% to reach 99.335, marking a six-month low. This drop was fueled by:

• Softer-than-expected inflation data: US inflation eased to 2.4% from 2.8%, while core inflation dipped to 2.8%, the lowest since April 2021.
• Diplomatic shifts in US-China trade relations: A surprising conciliatory tone from former President Donald Trump added to the dollar’s woes.

Amit Pabari, managing director of CR Forex Advisors, elaborated, “The key driver behind the dollar’s sharp depreciation was the unexpected easing in US inflation, which increased the likelihood of further rate cuts by the US Federal Reserve, thereby weakening the greenback.”

Future Outlook for the Rupee

With the rupee showing signs of strength and sentiment improving, analysts suggest that a sustained move below 86 could pave the way for further gains, targeting levels around 85.50 to 85.60.

Market Reactions and Oil Prices

The recent pause in US reciprocal tariffs led to a market relief rally, although concerns about the broader economic implications of tariffs resurfaced, putting additional pressure on the dollar. At the interbank foreign exchange market, the rupee opened at 86.2475 against the dollar and touched an intraday high of 85.9450.

Meanwhile, crude oil futures have been hovering near four-year lows, which continues to support the rupee. Brent crude, the global oil benchmark, saw a slight increase of 0.43% to $63.60 per barrel.

In summary, the rupee’s notable gain against the US dollar reflects a combination of regional currency strength, market sentiment, and shifts in US economic indicators. Investors will be keenly watching these developments as the currency navigates through the evolving economic landscape.