Rupee falls 89p, the most since Feb 2023, as India-Pak tensions rise

Mumbai: The Indian rupee fell nearly 1% on Thursday amid rising tensions between India and Pakistan.

The domestic currency opened at 84.61 and moved between an intra-day high of 84.52 and a low of 85.77 against the dollar. It closed 89 paise lower at 85.72 after ending at 84.83 against the dollar on Wednesday, marking the worst day since 6 February 2023. 

Both the currency and stock markets declined on Thursday after India confirmed it had targeted air defence radars and systems at a number of locations in Pakistan, while Pakistan's military said it had shot down 25 Indian drones. 

Dollar index adds pressure

The rise in dollar index also aided in the rise of dollar-rupee. The dollar index, which gauges the dollar’s strength against a basket of six currencies, was trading higher by 0.46% at 100.07. 

Read more: FPIs turn bullish on index futures amid escalating India-Pakistan tensions, but risks loom

“With hostilities increasing and if RBI does not step in, we can see the rupee reach even 87 tomorrow with a more than 1 rupee movement seen today, ”said Anil Kumar, head of treasury and executive director at Finrex Treasury Advisors LLP.

Meanwhile, the Reserve Bank of India (RBI) was found intervening in the market at different levels over the last two days to reduce volatility and is expected to be active in the coming days. In March, the rupee appreciated sharply from 87.5 to 85 in just 20 days owing to a correction in the dollar index. The dollar gauge has corrected by 7.8% since January this year. 

 “Importers have hedged reasonably well when the rupee dipped from 87.5 to 85. But exporters had missed the bus when the rupee appreciated over the last 2 months. But they are now in the market hedging their positions,” said Ritesh Bhansali, deputy chief executive officer, Mecklai Financial Services Pvt Ltd.

Dilip Parmar, research analyst at HDFC Securities, said the market sentiment remains subdued due to persistent geopolitical anxieties and the potential for foreign fund outflows. “The USDINR spot rate faces resistance at ₹86.40 and finds support at ₹85," he said. “The bias has shifted to weak following the rise in conflict.”                                                                   

Read more: Operation Sindoor: What's next for Indian defence stocks?