The Indian rupee weakened for the second consecutive trading session on Friday, November 13, slipping 8 paise to close at 94.20 (provisional) against the US dollar. A stronger American currency, rising US Treasury yields and losses in domestic equity markets put pressure on the Indian currency, extending its recent decline.

The latest fall comes after the rupee lost 41 paise on Thursday, closing at 94.12 against the dollar. The back-to-back losses highlight the challenges facing the domestic currency as global financial conditions become less favourable and investors closely monitor developments in the United States and West Asia.

At the interbank foreign exchange market, the rupee opened at 94.07 against the US dollar on Friday. It moved within a narrow range during the session, touching an intraday high of 94.05 and a low of 94.28 before settling at 94.20. The decline reflects continued pressure on the domestic currency despite support from foreign investor buying in Indian equities.

One of the main reasons behind the rupee’s weakness is the growing strength of the US dollar in international currency markets. The dollar has gained momentum following higher-than-expected inflation figures in the United States and comments from Federal Reserve officials suggesting that interest rates could remain elevated for longer.

The dollar index, which measures the greenback’s performance against a basket of six major international currencies, stood at 103.16, registering a rise of 0.12 per cent.

A stronger dollar generally puts emerging market currencies, including the Indian rupee, under pressure. When the American currency becomes more attractive to international investors, demand for dollars increases, making it more difficult for currencies such as the rupee to maintain their value.

Expectations of further interest rate increases by the US Federal Reserve have added to these concerns. Higher interest rates in the United States can encourage investors to move funds towards dollar-denominated assets, potentially reducing investments in emerging economies.

According to currency market commentary, traders are increasingly factoring in the possibility of another Federal Reserve rate hike in December. Markets were reportedly pricing in an 85 per cent probability of such a move, adding to uncertainty surrounding the rupee’s near-term outlook.

The increase in US Treasury yields has emerged as another important factor influencing the rupee-dollar exchange rate.

The US two-year Treasury yield climbed to 4.867 per cent, while the 10-year Treasury yield increased to 5.113 per cent. Higher bond yields make American government securities more attractive to investors seeking relatively better returns.

This can encourage global investors to shift money towards the United States, increasing demand for the dollar and putting pressure on currencies across emerging markets.

Market experts believe that continued increases in US bond yields could make the rupee’s recovery more difficult. Expectations of further monetary tightening by the Federal Reserve may also encourage foreign investors to reassess their exposure to emerging market assets.

Jateen Trivedi, vice-president and research analyst at LKP Securities, said the rupee remained under pressure as the dollar index moved above 103. He also pointed to geopolitical uncertainty involving Iran, the Gulf region and the United States as a factor contributing to cautious market sentiment.

Trivedi indicated that continuing uncertainty in West Asia could keep the domestic currency volatile. He expects the rupee to trade within a range of 93.85 to 94.60 in the near term.

Weakness in the domestic equity market also contributed to the rupee’s decline on Friday. Indian benchmark indices ended lower, reflecting cautious investor sentiment amid global uncertainties.

The BSE Sensex fell 318.56 points to settle at 81,592.45, while the NSE Nifty declined 155.05 points to close at 25,144.30.

Foreign institutional investors (FIIs), however, have continued to provide some support to Indian financial markets through their recent purchases of domestic equities. According to exchange data cited in market reports, foreign investors bought shares worth ₹12,563.33 crore on Wednesday.

Despite these inflows, the rupee has struggled to sustain its gains against the dollar. This suggests that international currency movements, rising US yields and geopolitical developments are currently playing a significant role in determining the domestic currency’s direction.

International crude oil prices and developments in West Asia are also important considerations for the rupee’s movement. Brent crude, the global oil benchmark, was trading 0.37 per cent lower at $95.47 per barrel in futures trade.

India imports a substantial portion of its crude oil requirements, making the economy sensitive to changes in international energy prices. Higher crude prices increase the country’s import bill and raise the demand for dollars among oil-importing companies.

This can put additional pressure on the rupee, particularly when the dollar is already strengthening in international markets.

Geopolitical tensions involving Iran, the Gulf region and the United States have further complicated the outlook. Any escalation that disrupts energy supplies or shipping routes could trigger fresh volatility in crude oil prices and currency markets.

Currency market participants are therefore keeping a close watch on developments in the region, US inflation trends, Federal Reserve policy signals and foreign investment flows.

Rupee outlook remains cautious

The Indian rupee’s decline over the past two sessions highlights the difficult external environment facing the domestic currency. While foreign portfolio investment has offered some support, the combination of a stronger dollar, elevated US Treasury yields and geopolitical uncertainty continues to weigh on sentiment.

A further increase in US interest rates could make dollar assets more attractive, potentially encouraging capital movements away from emerging markets. At the same time, changes in crude oil prices could influence India’s import costs and overall currency stability.

A sustained recovery in the rupee will depend on several factors, including the direction of the US dollar, global bond yields, crude oil prices and foreign investor activity.