MUMBAI: The rupee plunged past the 86-mark against the US dollar for the first time on Monday, while domestic stock markets sank more than 1.3 per cent amid a strong dollar, continued foreign fund outflows, and surging crude oil prices.
The rupee tumbled 61 paise to close at a record low of 86.58 after opening at 86.18. It marked the steepest single-day decline in nearly two years, with the currency touching an intraday low of 86.60.
“Indian rupee breached the 86 mark for the first time in history on risk aversion in global markets and a strong US dollar,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
US data fuels dollar rally
The US labour market added 256,000 jobs in December 2024, significantly exceeding estimates of 164,000, while the unemployment rate dropped to 4.1 per cent from the forecasted 4.2 per cent.
Robust US economic data has diminished expectations of rate cuts by the Federal Reserve in 2025, according to forex market analysts.
A University of Michigan survey revealed that US consumers expect one-year inflation to rise to 3.3 per cent in January 2025, up from 2.8 per cent the previous month. “This has led to expectations that the Federal Reserve may refrain from hiking interest rates in its upcoming January FOMC meeting,” Choudhary added.
Markets have also adjusted 2025 rate cut forecasts, now anticipating just one cut instead of the two previously expected. Following the jobs report, US Treasury yields surged, with the 10-year yield climbing to around 4.8 per cent.
Current account woes
Adding to the challenges rupee faces is the sharp rise in crude oil prices, which has exacerbated India’s current account deficit (CAD). As a net importer of oil, higher crude prices increase fiscal stress, further weakening the rupee.
The rupee’s decline mirrored bearish sentiment in domestic equity markets, with the Sensex tanking over 1,000 points amid global market jitters and concerns over inflationary pressures.
The US labour market added 256,000 jobs in December 2024, significantly exceeding estimates of 164,000, while the unemployment rate dropped to 4.1 per cent from the forecasted 4.2 per cent.
Robust US economic data has diminished expectations of rate cuts by the Federal Reserve in 2025, according to forex market analysts.
A University of Michigan survey revealed that US consumers expect one-year inflation to rise to 3.3 per cent in January 2025, up from 2.8 per cent the previous month. “This has led to expectations that the Federal Reserve may refrain from hiking interest rates in its upcoming January FOMC meeting,” Choudhary added.
Markets have also adjusted 2025 rate cut forecasts, now anticipating just one cut instead of the two previously expected. Following the jobs report, US Treasury yields surged, with the 10-year yield climbing to around 4.8 per cent.
Current account woes
Adding to the challenges rupee faces is the sharp rise in crude oil prices, which has exacerbated India’s current account deficit (CAD). As a net importer of oil, higher crude prices increase fiscal stress, further weakening the rupee.
The rupee’s decline mirrored bearish sentiment in domestic equity markets, with the Sensex tanking over 1,000 points amid global market jitters and concerns over inflationary pressures.