The Indian rupee gained 1.3%, its best weekly performance since January 2023, closing at 85.4750 against the US dollar on Friday. This marks the rupee’s strongest weekly gain in two and a half years. The strong rise was driven by falling oil prices and decreased demand for the dollar due to growing concerns about the independence of the Federal Reserve (Fed).
Brent oil prices have fallen by more than 11% this week following a ceasefire after a 12-day conflict between Iran and Israel, which also involved the US.
This development somewhat eased global inflationary pressures, reducing safe-haven demand for the dollar. […] […] On the other hand, the dollar index fell by 1.5% this week. Investors are acting cautiously due to the increasing political influence on the decisions of the Federal Reserve (Fed). These developments caused the dollar to fall to its lowest level in three years. MUFG Bank made the following assessment on the matter:“Some of the dollar sell-off stems from the unpredictability of policies coming from Washington, and this uncertainty does not appear likely to disappear anytime soon.”
Rupee Strengthens but Lags Behind Other Asian Currencies
Despite this week’s strong rise, the rupee will still lag behind many Asian currencies in 2025.
For example, the South Korean won and the offshore Chinese yuan have appreciated by between 2% and 9% so far this year, but the rupee has remained almost unchanged. Despite this, bankers and analysts note that the weakening of the dollar globally and strong portfolio inflows into India could provide short-term support to the rupee. Recently, foreign investors have become net buyers of Indian government bonds. Furthermore, international interest in block trading and initial public offerings (IPOs) continues to attract global capital to India.Later on Friday, investors will be watching the US personal consumption expenditure (PCE) inflation data. Also, statements from Fed officials will shape expectations regarding the central bank’s future policies.
