On Wednesday the Indian rupee fell 16 paise and closed at 92.01 (provisional) against the U.S dollar with the increase in world crude oil prices and the American currency strengthening. Market observers claimed that the current tensions in West Asia have driven the oil prices to an elevated level and consequently, this has strained the local currency.
In the interbank foreign exchange market, the rupee began at 91.92 against the U.S. dollar and traded within the range of 91.85 and 92.06 throughout the trade before closing at 92.01. The decrease is indicative of further volatility in international markets due to the effects of geopolitical disputes to influence the energy prices and investor confidence.
Weakness of the rupee was also caused by strengthening of the U.S. Dollar Index. The index that determines the performance of the dollar on a basket of six global major currencies was trading at an average of 98.96, gaining the dollar by approximately 0.14. The impact of the stronger dollar is that the emerging market currencies such as the rupee becomes less attractive to the investor.
The other significant reason that contributed to the fall of the currency was the increase in the prices of global crude oil drastically. The world standard oil, Brent Crude, went up more than 5 per cent to trade around $92.58 a barrel in the futures market. India imports much of its crude oil needs thus, an increase in oil prices is likely to increase the trade deficit and burden the rupee.
The situation in the domestic market was also poor. The BSE Sensex and Nifty 50 benchmark equity indices were down sharply, indicating that investors were cautious. In the meantime foreign institutional investors were still withdrawing money out of Indian equities selling shares to the value of 4,672.64 crore net, which continued to pressure the currency.
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