The Indian Rupee is expected to face continued downward pressure due to weakening Asian currencies and declining foreign equity inflows. On Monday, the rupee fell to a near one-month low, trading at approximately 86.15 against the U.S. dollar, driven by strong dollar demand from foreign and local private banks. This follows a nearly 1% drop over the past two weeks, with the currency hovering close to its weakest levels since mid-June.
The broader decline in Asian currencies, coupled with muted foreign portfolio investments, has weighed heavily on the rupee. Offshore investors withdrew over $600 million from Indian equities this month, a sharp contrast to the $4 billion inflow seen in May and June. Importers’ demand for dollars for payments and short-term hedging has further strained the currency, with bankers noting persistent buying activity.
Market attention is focused on the upcoming U.S.-India trade negotiations, with an August 1 deadline looming. A failure to secure a favorable deal could exacerbate pressure on the rupee, particularly for Indian exporters facing potential U.S. tariffs. However, a successful agreement might provide temporary relief, according to currency analysts. The dollar index, holding steady near 98.50, adds to the rupee’s challenges as it reflects a pause in the dollar’s recent downtrend.
The Reserve Bank of India (RBI) has been actively intervening to curb sharp declines, maintaining the rupee within a tight range. Despite these efforts, India’s foreign exchange reserves have dropped to a four-month low of $657.89 billion, partly due to valuation losses and RBI’s interventions. Social media discussions on X highlight a risk-off sentiment, with traders anticipating further rupee weakness if U.S. tariff policies intensify.
With key events like the European Central Bank’s rate decision and the China-EU summit this week, global market dynamics will likely influence the rupee’s trajectory. For now, the currency remains vulnerable, with analysts predicting a potential slide to 87.18 in three months if trade uncertainties persist.
Published in SouthAsianDesk, July 21st, 2025
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