Rupee breaches the 89.5 per dollar-mark intraday, hits fresh low

RBI's absence in the market may be behind the sharp fall

A combination of factors, including delay in securing a trade deal with the United States coupled with sanctions on some Indian firms over Iranian oil purchase along with a fading chance for rate cut by the US Federal Reserve, resulted in a sharp weakening of the rupee. The currency breached the 89.5/$ mark during the last trading hour on Friday, with the absence of the central bank in defending the currency resulting in ‘short squeeze’, accentuating the fall. 

Intraday, the rupee hit a low of 89.54 per dollar, before closing at a new low of 89.49— weakening 0.9 per cent during the day — its second worst fall in 2025. 

Bond prices also slumped after the rupee’s fall, with the yield on the 10- year benchmark government paper closing 4 bps higher than the previous close. 

Dealers said the central bank decided to stay on the side lines after it breached 88.80 a dollar mark, which triggered stop losses and the currency slipped to the day’s low. 

“The 88.80 per dollar mark had become a line in the sand and most market participants would have had that as a stop loss in mind,” said Abhishek Goenka, Founder & chief executive officer, IFA Global. 

The rupee was the worst-performing currency among its Asian peers on Friday. 

“Expectations of a rate cut by the Fed in December have got trimmed due to lack of availability of data on account of disruptions due to US government shutdown. Most Fed members, who have spoken lately, have been hawkish. The dollar has strengthened overall as a result. This might have resulted in the RBI giving up its defence of 88.80 mark,” Goenka added. 

The dollar index rose by 0.5 per cent to 100.17. It measures the strength of the greenback against a basket of six major currencies. 

The rupee, which depreciated 4.33 per cent in 2025, is the worst performing Asian currency. 

Market participants said that a sudden short squeeze near the 88.80 per dollar mark after the Reserve Bank of India pulled out support, led to the sharp decline in the domestic currency during the last trading hour. 

A short squeeze means panic dollar buying by traders caught on the wrong side of the market, which accelerates the rupee’s decline. 

Delay in the trade deal with the US also weighed on the Indian unit. On November 20, RBI governor Sanjay Malhotra said he is confident that there will be a “good trade deal” with the US, which will relieve the pressure on the current account and in turn the rupee. 

“Despite the RBI governor saying yesterday that once the trade deal is done, it will be positive for the rupee and current account. RBI left the market at 88.80 and after that the short squeeze caused the next quote to come at 89.30. After this, the rupee made a new low of 89.53 and closed at its lowest,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP. 

The government bond yields rose by 4 basis points following the sharp decline in rupee. The yield on the benchmark 10-year government bond settled at 6.57 per cent, against the previous close of 6.53 per cent. 

“The selling was triggered because of the depreciation of the rupee,” said a dealer at a state-owned bank. 

In the foreign exchange market, the RBI has already spent substantial reserves defending the 88.80 per dollar mark, with its short positions in forwards, including NDFs, likely exceeding $70 billion. Market participants said that the central bank would have preferred to hold back some tools to intervene at higher levels rather than exhaust all resources at 88.80 per dollar. 

RBI’s net short dollar forward position increased by $6 billion in September, marking the first rise in six months. The total dollar short position stood at $59 billion by the end of September against $53 billion at the end of August.