Rupee recovers slightly to 85.07 against US dollar, but pressures remain

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The Indian rupee experienced a minor recovery on Friday, appreciating by 6 paise to 85.07 against the US dollar in early trade. This comes after the rupee hit an all-time low of 85.13 on Thursday, underlining the ongoing pressure on the domestic currency.

Forex traders indicated that the rupee is likely to remain in a weakening phase due to continued strong demand for the US dollar. The Dollar Index (DXY), which measures the greenback's strength against a basket of six major currencies, is expected to stay elevated in the near term, with resistance near the 110 level. This follows reduced expectations for aggressive rate cuts by the US Federal Reserve in 2025, following its recent decision to lower rates by 25 basis points.

On Wednesday, the Federal Reserve slashed interest rates by 25 basis points. However, the central bank's forward guidance for 2025 has been softened, with expectations now lowered from four rate cuts to just two. This shift has further impacted the rupee, as traders adjust their expectations of future monetary policy actions.

At the interbank foreign exchange market, the rupee opened at 85.07, marking a gain of 6 paise from its previous close. The domestic currency later traded at 85.10 against the dollar, remaining slightly above its historic low. On Thursday, the rupee fell by 19 paise, breaching the key 85.00 mark, and closed at an all-time low of 85.13.

According to Amit Pabari, Managing Director of CR Forex Advisors, the Indian rupee is facing significant challenges from both global and local factors. While the Federal Reserve's cautious stance on rate cuts has led to a more than 1% correction in Indian equities, the Reserve Bank of India (RBI) appears limited in its ability to intervene effectively due to tightening liquidity in the banking system. Pabari predicted that in the short term, the USD/INR pair will likely consolidate within a range of 84.70 to 85.20.

Meanwhile, the dollar index was trading 0.03% higher at 108.43, indicating further strength for the greenback. Brent crude, the global oil benchmark, fell by 0.62%, trading at USD 72.43 per barrel in futures.

In the domestic equity markets, the 30-share benchmark Sensex was down by 145.13 points, or 0.18%, at 79,072.92, while the Nifty declined by 17.40 points, or 0.07%, to 23,934.30. Foreign Institutional Investors (FIIs) were net sellers on Thursday, offloading equities worth Rs 4,224.92 crore, according to exchange data.

As per PTI, the rupee's recent volatility is likely to continue, given the combination of global and domestic economic pressures. The currency is expected to remain sensitive to changes in US monetary policy, foreign fund flows, and global oil price fluctuations.

(With inputs from PTI)