The Indian rupee weakened slightly against the U.S. dollar in early trading on Wednesday, and stood at 85.6725 against the US dollar, down from the previous session’s close of 85.6150. The reason attributed to the weakening is an increase in demand for dollars majorly from importers.
The Indian rupee has been under consistent downward pressure in recent weeks, driven by several factors, including the ongoing strength of the U.S. dollar and concerns over India’s slowing economic growth.
On Tuesday, the dollar index surged around 0.4 per cent to 108.4, approaching its highest point in over two years. U.S. bond yields also saw an uptick during holiday with low trading volume, along with the 10-year U.S. Treasury yield edging up by 3 basis points to 4.57 per cent. The ongoing strength of the U.S. dollar has contributed to the rupee’s weakness, which is expected to persist in the near term.
Amid the lingering downward bias on the local currency, importers should “buy all dips (on USD/INR),” said Ani Bhansali, head of treasury at Finrex Treasury Advisors.
Meanwhile, dollar-rupee forward premiums retreated slightly from their highest levels in over a year and a half. The 1-year implied yield fell by 4 basis points to 2.50 per cent, following an “unusual surge” in very near-dated dollar-rupee swap rates, which had driven premiums higher.
Despite the challenges, the outlook for the rupee in early 2025 remains cautious, with analysts closely monitoring both domestic economic trends and global market developments.
(With Reuters Inputs)