The Indian Rupee (INR) fell to near a record low on Thursday, driven by increased demand for the US Dollar (USD) from importers, foreign banks, and outflows from foreign funds. Additionally, a sluggish trend in domestic equities further weighed on the local currency. The Indian Rupee’s decline was exacerbated by the US Federal Reserve’s decision to reduce its key interest rate by 0.25% on Wednesday, alongside its projection of a slower pace of rate cuts in 2025, which strengthened the USD.
On Thursday, Indian equity markets mirrored the declines on Wall Street following the Fed‘s announcement, with the Nifty 50 and BSE Sensex opening lower at 23,880 and 79,029, respectively. This marks the fourth consecutive session of losses, led by declines in banking, financial services, metals, and technology sectors. Foreign outflows have continued to pressure the INR, adding to its volatility.
Despite the Rupee’s weakness, analysts suggest that the downside may be capped, as the Reserve Bank of India (RBI) is expected to intervene to prevent excessive fluctuations. Market participants will closely watch US economic data, including weekly initial jobless claims, existing home sales, and the final GDP reading for Q3, all set to release later on Thursday.
Further uncertainty is looming as traders await a key decision on Friday from China’s central bank regarding lending rates, which could influence market sentiment. Additionally, there is growing speculation about possible policy shifts and tariff adjustments under the incoming US administration, which may impact both local and global markets.
Meanwhile, concerns about India’s widening trade deficit, driven in part by a surge in gold imports, contributed to the INR’s drop to a new low. However, Bloomberg News reported that this deficit was partly due to a calculation error.
Despite pressure from dollar demand, analysts maintain that the INR is performing relatively better than other currencies, with depreciation occurring at a gradual pace. Experts predict that the INR will likely trade within a narrow range, with the 85 per USD level acting as a key support barrier.
The Fed’s rate cut on Wednesday reduced the Federal Funds Rate by 25 basis points to a range of 4.25%-4.50%, marking a return to December 2022 levels. Although the Fed plans further rate cuts in 2025, it revised its projection downward from four cuts to two.
In the currency market, the USD/INR pair continues to show an upward trend, holding above the 100-day Exponential Moving Average (EMA). The 85.00 mark remains a critical level for resistance, with a breakout potentially targeting 85.50. On the downside, support emerges at 84.82, and a breach could push the currency pair toward 84.22.
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