MUMBAI: The Indian rupee’s recent gains came under pressure on Thursday as rising US Treasury yields and concerns over volatile oil prices challenged the currency’s recovery to a near three-week high.
The rupee is expected to open slightly weaker or remain largely unchanged after strengthening for four consecutive sessions. The currency gained 0.2% on Wednesday to close at 95.6475 per dollar, marking a rise of more than 1% during the recent rally.
Traders attributed much of the rupee’s recovery to sustained intervention by the Reserve Bank of India (RBI), which has stepped into the foreign exchange market to support the currency.
Why Is the Rupee Facing New Pressure?
The rupee’s momentum is being tested by higher US Treasury yields following the Federal Reserve’s latest policy decision.
US 30-year Treasury yields remained near their highest levels in nearly two decades as investors questioned whether the Federal Reserve’s approach would be sufficient to control inflation.
The rise in yields increased demand for the US dollar as investors sought higher returns and greater protection against inflation risks.
The pressure followed the Federal Reserve’s decision to keep interest rates unchanged, despite three officials dissenting in favor of a rate increase. Fed Chair Kevin Warsh reiterated the central bank’s commitment to controlling inflation but did not provide clear guidance on future policy moves.
MUFG Bank said markets were seeking stronger evidence that the Federal Reserve would take concrete action to address inflation concerns.
How Are Oil Prices Affecting the Currency?
Higher oil prices remain another major risk for the rupee, as India relies heavily on imported crude oil.
The risk increased after the United States carried out fresh strikes in Iran on Wednesday, escalating tensions in the region and raising concerns about possible disruptions to energy supplies.
Brent crude prices jumped nearly 8% on Wednesday before easing slightly during Asian trading.
Analysts said further volatility in global oil markets could increase pressure on India’s import bill and weigh on the rupee.
The RBI has intervened in currency markets in recent sessions, including selling dollars when the rupee approached record lows. Traders said the central bank’s presence has helped stabilize market sentiment, although the scale of intervention has recently moderated.