Amid India-Pak tensions, rupee sees steepest 1-day drop in a month

The rupee fell 0.47 per cent intraday amid rising India-Pakistan tensions and a stronger dollar index, before recovering partially on likely RBI-backed intervention

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The rupee witnessed its steepest decline in almost one month amid escalated India-Pakistan tensions weighing on market sentiment, according to dealers. The rise in dollar index led to further weakening of the domestic unit. 

 

The currency depreciated by 0.47 per cent to 84.92 per dollar during the day — however, it recovered some losses by the end of the trade after state-owned banks sold dollars, likely on behalf of the Reserve Bank of India (RBI). It settled at 84.83 per dollar, against the previous close of 84.44 per dollar.

 

“The dollar index was up and the tension at the border was the reason for the rupee weakening. Bankers were selling at 84.90, we scaled down a little because of that,” said a dealer at a state-owned bank.

 

“Amid lingering geopolitical concerns and a stronger dollar index, the Indian rupee experienced its most significant single-day drop in a month, continuing its decline for the second day. The easing of trade tensions has allowed the dollar to rebound, negatively impacting major currencies. Further, consistent dollar demand from oil importers and hedgers have exerted downward pressure on the rupee over the past two days. Spot USDINR is anticipated to trend upward, potentially reaching 85.70 per dollar if it holds above 85 per dollar. Conversely, 84.25 presents a significant support level,” said Dilip Parmar, senior research analyst, HDFC Securities.  

 

On Wednesday, India said it had targeted nine Pakistani “terrorist infrastructure” sites, after 26 civilians were killed in the Pahalgam terror attack last month. 

 

The dollar index was up 0.3 per cent to 99.63 on Wednesday, ahead of the US Federal Reserve meeting outcome. It measures the strength of the greenback against a basket of six major currencies.

 

The US rate setting panel is expected to keep the funds rate unchanged, amid growth concerns in the country.

 

Meanwhile, the yield on India's benchmark 10-year government bond has remained steady due to the RBI’s proactive liquidity measures, including open market operations (OMOs), which have bolstered market sentiment. Recent geopolitical developments had caused yields to inch upward in the past week, but traders are now adopting a cautious "wait-and-watch" approach, awaiting further developments.

 

The benchmark yield settled at 6.34 per cent, against the previous close of 6.35 per cent.

 

“The developments were already factored in, now we will have to wait for a day or two in case some more developments are there,” said the treasury head at a private bank. “Buying momentum is there, the sentiment is good in the market, the yields have already moved up,” he added.