The Indian rupee plunged to a historic low on Thursday, as market sentiment anticipates a stronger dollar following the likely impact of Donald Trump's policies. The 
USDINR exchange rate dipped to 84.2950, surpassing the previous all-time low of 84.28 recorded just a day earlier.
Why the Rupee is Weakening: Trump’s Economic Policies and Dollar Strength
Analysts suggest that Trump's fiscal policies, including tax cuts and deregulation, are poised to boost U.S. economic growth, making the dollar a more attractive option for investors. This shift in favor of the U.S. dollar is expected to weaken other currencies, particularly the euro and Asian currencies, with concerns over potential tariffs adding to the pressure.
Asian Currencies Recover Slightly, Dollar Index Weakens
Asian currencies rebounded slightly on Thursday after sharp declines, with some currencies falling by as much as 1.8% in the prior session. The dollar index eased 0.1%, settling at 104.9, signaling a brief pause in the dollar's dominance.
RBI’s Role in Stabilizing the Rupee
Traders expect the Reserve Bank of India (RBI) to continue its interventions in the currency market, preventing drastic fluctuations in the rupee. The Indian rupee’s implied volatility remains subdued compared to regional peers, reflecting RBI’s cautious approach.
A trader at a state-run bank noted, “The RBI is gradually allowing the USD/INR to move higher, but the upside should be capped near 84.40 in the short term.”
Outflows from Indian Equities Add Pressure on the Rupee
Another contributing factor to the rupee’s weakness is the persistent outflow of foreign investments from Indian stocks. Foreign investors have sold over $1.5 billion worth of Indian equities in November alone, adding to the $11 billion in outflows from October.
On Thursday, India’s benchmark equity indices, the BSE
SENSEX and
NIFTY50, both saw declines of around 0.5%.
Inflation and RBI’s Actions Will Determine Rupee’s Future Trajectory
According to analysts at Citibank, the future of the Indian rupee will largely depend on the RBI’s interventions and India’s inflation differential with the rest of the world. These factors will play a crucial role in determining the extent of any further depreciation in the rupee.
Focus Shifts to the U.S. Federal Reserve’s Upcoming Policy Decision
Market attention is now turning to the U.S. Federal Reserve’s upcoming policy meeting, expected to take place after midnight IST. Investors widely anticipate a 25 basis point rate cut, with a keen focus on Chair Jerome Powell’s comments for any clues on the future direction of U.S. interest rates.
