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    Rupee Rebounds from Record Low, Closes at 91.71 Against U.S. Dollar

    3 months ago

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    The Indian rupee staged a modest recovery on Tuesday, strengthening by 19 paise to close at 91.71 against the U.S. dollar after hitting record low levels in recent sessions. The rebound was supported by a softer U.S. dollar globally and improved domestic sentiment following developments on the India–European Union free trade agreement (FTA).

    Currency traders said the rupee’s recovery came largely on the back of dollar weakness, prompting market participants to unwind short positions. However, the gains remained limited due to persistent pressures from higher crude oil prices, rising commodity costs, and continued foreign fund outflows.

    At the interbank foreign exchange market, the rupee opened weaker at 91.82 per dollar. It slipped further during early trade, touching an intraday low of 91.90, before reversing course in the latter half of the session. The domestic currency eventually settled at 91.71 (provisional), marking a 19-paise gain from its previous close.

    The rupee had touched a historic low of 92 per dollar in the previous trading session before ending marginally stronger at 91.90. Currency and equity markets remained closed on Monday due to the Republic Day holiday, resulting in pent-up trading activity on Tuesday.

    Market participants pointed to the conclusion of negotiations on the India–EU free trade agreement as a key factor supporting sentiment. The agreement, which is expected to ease market access for several Indian sectors while opening parts of the domestic market to European products, has been seen as a positive signal for long-term trade and investment flows.

    “The rupee is likely to trade with a mild positive bias in the near term, supported by improved sentiment around the India–EU FTA and some weakness in the dollar index,” a market analyst said. “However, sustained upside may be capped by foreign institutional investor selling and ongoing global uncertainties.”

    The U.S. dollar index, which tracks the greenback against a basket of major global currencies, was marginally lower, trading around 97.01. The softer dollar provided temporary relief to emerging market currencies, including the rupee.

    At the same time, higher crude oil prices continued to act as a drag. Brent crude, the global oil benchmark, was trading slightly higher at around $65.60 per barrel in futures trade. India, being a major importer of crude oil, typically faces pressure on its currency when oil prices rise, as higher import bills widen the current account deficit.

    Foreign institutional investors (FIIs) remained net sellers in the equity market, offloading shares worth over ₹4,100 crore in the previous session, according to exchange data. Persistent capital outflows have been one of the key factors weighing on the rupee in recent weeks.

    On the equity front, domestic markets ended the day on a positive note, reflecting improved investor confidence. The BSE Sensex rose by nearly 320 points to close at 81,857.48, while the Nifty 50 gained about 127 points to settle at 25,175.40. Analysts said equity market strength provided some support to the currency, although it was not sufficient to trigger a sharper rebound.

    Global developments also remained on the radar of currency traders. Uncertainty around international trade policies and geopolitical tensions have contributed to volatility in currency markets worldwide. Any escalation in such risks could renew pressure on emerging market currencies, including the rupee, analysts cautioned.

    Meanwhile, India’s foreign exchange reserves provided a degree of comfort amid currency fluctuations. According to the Reserve Bank of India, the country’s forex reserves rose sharply by over $14 billion to reach $701.36 billion in the week ended January 16. The increase followed a more modest rise in the previous week and reflects the central bank’s efforts to maintain adequate buffers against external shocks.

    Economists noted that while the rebound in the rupee offers temporary relief, the currency’s medium-term trajectory will depend on several factors. These include global interest rate trends, the pace of foreign investment flows, crude oil price movements, and the implementation of key trade agreements such as the India–EU FTA.

    For now, traders expect the rupee to move within a broad range, with intermittent bouts of volatility. “Stability will depend on whether positive domestic cues can outweigh external pressures,” a forex dealer said.

    As markets continue to digest global and domestic developments, the rupee’s performance in the coming sessions is likely to remain closely linked to movements in the dollar, commodity prices, and investor sentiment across financial markets.

     
     
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