The Indian currency made a drastic recovery in early trade on Tuesday, gaining 119 paise to 90.30 against the U.S dollar on a foundation of a massive reduction of the U.S. tariffs on Indian goods. The action followed a decision by Washington to cut by half tariffs to 18 percent, which increased investor confidence and made the prospects of trade in India much more optimistic.
The rupee started on a high note at the interbank foreign exchange market at 90.30 which is a significant improvement on its last position of 91.49. According to currency traders, the drastic appreciation was a response to the optimism over better trade relations with the United States and weaker dollar around the world.
The dollar index, that tracks the power of the greenback over a group of six key currencies, lost 0.20 to 97.43, which also contributes to the uprising of emerging market currencies, the rupee. To further support the positive move, the price of crude oil relaxed, and Brent crude dropped by 0.41 in future trade at 66.03 per barrel. Supporting the rupee in low oil prices will help reduce the import bill in India and relieve the current account deficit.
Equity markets in the home countries also performed well. The benchmark Sensex shot up 2,138.08 points or 2.62 to trade at 83,804.54 and the Nifty shot up 607 points, or 2.42 to 25,695.40. The market players credited the surge to positive global indicators and optimism on the India-U.S trade agreement.
Foreign institutional investors (FIIs) were, however, net sellers as they sold equities of 1,832.46 crore on Monday, exchange data indicates. Nevertheless, analysts assume that the rupee and equity markets will be supported in the near future due to continued support in policies, stable crude prices, and favorable trade activities.
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