Currency markets saw renewed pressure this week as the Indian rupee weakened sharply, marking its steepest weekly decline in 1 month. The local unit slipped close to the 91-per-dollar level amid likely portfolio outflows and continued geopolitical tensions.
The rupee closed at 90.9825 per dollar on Friday, down 0.3% for the day and 0.4% for the week. Traders said intervention by the central bank, including action on Friday, helped prevent the currency from breaching the 91 mark despite strong dollar demand from importers and unwinding of bullish positions. “There was a meaningful supply of dollars from the central bank in the market today,” a trader at a Mumbai-based bank said, adding that he expects the rupee to trade between 90.50 and 91.50 in the near term.
Asian currencies showed a mixed trend, while the dollar index was heading for its strongest weekly gain. The greenback was supported by stronger-than-expected U.S. economic data, a more hawkish outlook from the Federal Reserve and rising tensions between the U.S. and Iran. Amid a large U.S. military build-up in the Middle East, U.S. President Donald Trump said negotiations with Iran were progressing well but insisted that Tehran must reach a “meaningful” agreement.
Analysts at ING noted, “Large-scale US military deployment is raising the perceived risk of an imminent strike on Iran. The dollar acts more efficiently as a safe haven when geopolitical risk lifts crude prices, yet markets remain reluctant to fully price this in.” Brent crude oil prices were set to close the week over 5% higher, last trading around $71.5 per barrel, adding to currency market volatility.
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