The Indian rupee experienced significant downward pressure on Wednesday, depreciating by 31 paise to settle at an unprecedented closing level of 91.99 against the US dollar. This marks the second occasion in less than a week that the domestic currency has closed at its weakest-ever position, with traders attributing the decline to intensified month-end demand for the greenback and persistent geopolitical uncertainties.
Early Optimism Fades as Dollar Demand Intensifies
At the interbank foreign exchange market, the rupee commenced trading on a stronger note, opening at 91.60 and reaching an early high of 91.50. This initial firmness was supported by a softer US dollar index and positive market sentiment following a long-awaited trade breakthrough between India and the European Union. However, these gains proved temporary as demand for dollars escalated toward month-end, causing the rupee to surrender all advances and slide to an intraday low of 91.99.
Historical Context and Recent Performance
The domestic currency thus revisited its lowest-ever closing level of 91.99, matching the record set on January 23 when it also touched an all-time intraday low of 92 against the dollar. This decline comes despite a brief recovery on Tuesday, when the rupee gained 22 paise to close at 91.68, highlighting the volatility and pressure facing the currency in recent sessions.
Trade Agreement Provides Temporary Support
Forex analysts noted that early support emerged from easing dollar strength and optimistic sentiment after India and the European Union concluded negotiations on a comprehensive free trade agreement (FTA). This landmark pact, described as the "mother of all deals," creates a market of nearly 2 billion people and is expected to grant several Indian sectors—including apparel, chemicals, and footwear—duty-free access to the EU market. In return, the European bloc will receive concessional access to India for products such as cars and wines.
Sustained Pressures Overwhelm Positive Cues
Despite these positive developments, sustained dollar demand and ongoing geopolitical tensions continued to weigh heavily on the rupee throughout the trading session. The combination of month-end corporate requirements and broader global uncertainties overshadowed the initial optimism generated by the trade agreement announcement.
Global Market Indicators and Domestic Support
The dollar index, which measures the greenback against a basket of six major currencies, was trading 0.07 percent lower at 96.14. Meanwhile, Brent crude, the global oil benchmark, slipped 0.43 percent to $67.28 per barrel in futures trade, providing some relief to import-dependent economies like India.
Domestic equity markets offered additional support, with the Sensex rising 487.20 points to close at 82,344.68 and the Nifty climbing 167.35 points to settle at 25,342.75. Foreign institutional investors turned net buyers, purchasing shares worth Rs 480.26 crore on Wednesday, according to exchange data, indicating some confidence in Indian markets despite currency pressures.
Market Outlook and Analyst Perspectives
Market observers suggest that while the rupee faces immediate headwinds from dollar demand and geopolitical factors, the recently announced trade agreement with the European Union could provide medium-term support by enhancing export opportunities and strengthening economic ties. However, traders remain cautious about near-term volatility, particularly with ongoing global uncertainties and domestic economic indicators being closely monitored.
