The Indian rupee closed 11 paise weaker at 86.52 against the US dollar on Friday. This decline from Thursday’s close of 86.41 was influenced by global and domestic pressures on the currency.
Factors Contributing to the Rupee’s Weakness
The fall was attributed to a stronger US dollar, increasing Brent crude prices, and continuous foreign portfolio outflows. These factors have collectively made the rupee more vulnerable in recent trading sessions.
Impact of Brent Crude Prices
Brent crude rose to $69.53 per barrel during early Asian trading. This rise was supported by reduced geopolitical tensions and new trade agreements. Anil Kumar Bhansali, the head of treasury and executive director at Finrex Treasury Advisors LLP, mentioned that restrictions on Russian oil by the EU and temporary export suspensions from Russia have led to global supply tightness. He forecasted a moderate price increase with an expected price of $70.70 per barrel by September-end.
Strength in the US Dollar
Simultaneously, the US dollar index saw an increase, propelled by robust labor market data. Bhansali highlighted that the decline in jobless claims over six consecutive weeks showcases the US economy’s resilience.
European Central Bank and Interest Rates
The dollar also maintained its strength against major currencies following the European Central Bank’s decision to keep interest rates stable at 2%. This move marked the first halt after seven continuous rate cuts since 2024. Bhansali stated that this decision might indicate a potential conclusion to the easing cycle, especially since inflation has reached the 2% target. The ECB’s cautious stance is influenced by unresolved trade negotiations between the EU and the US, along with the looming threat of tariffs.
