Rupee hits lifetime low after biggest fall in nearly 2 years

To add to the subdued investor sentiment, the benchmark indices Sensex and Nifty fell 1.36% and 1.47% respectively on the back of a global selloff in stocks and amid signals of fewer rate cuts by the US Federal Reserve.

The rupee on Monday logged its steepest single-day fall in nearly two years and slumped 58 paise to hit a historic low of 86.62 against the US dollar, weighed down by a surge in the American currency, rising crude oil prices and minimal interference from the Reserve Bank of India.

To add to the subdued investor sentiment, the benchmark indices Sensex and Nifty fell 1.36 per cent and 1.47 per cent respectively on the back of a global selloff in stocks and amid signals of fewer rate cuts by the US Federal Reserve.

At the interbank foreign exchange, the rupee opened at 86.12 and closed with a loss of a staggering 58 paise, or 0.67 per cent, to hit its lowest-ever level of 86.62 (provisional) against the greenback. This was the steepest since February 6, 2023.

“Most currencies are under pressure due to the rising dollar and surging US bond yields,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. “For India, particularly, two factors are impacting the currency. One, foreign institutional investors are selling continuously since the US benchmark yield is hugely attractive now. Second, the recent surge in Brent crude to above $81 is causing concerns of a widening trade deficit impacting the rupee.”

Vijayakumar said that a trend reversal can happen only when the dollar peaks and then starts declining slowly, thus pulling the US bond yields down. This hinges on what incoming US President Donald Trump will do.

“Stronger-than-expected US job data triggered a sharp rise in US bond yields and the dollar index, with the latter breaching the psychological level of 110. Additionally, crude oil prices surged significantly due to new sanctions imposed by the US on Russian oil. These factors combined are exerting considerable pressure on the Indian rupee,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading up 0.29 per cent to its over two-year-high level of 109.80. The unprecedented fall has also been attributed to the relentless chase of the US dollar by investors.

So far this month, foreign investors have withdrawn Rs 22,194 crore from Indian equities, according to exchange data.

Market participants say that the Reserve Bank of India has intervened less than it had during the past few months, and that it has allowed the fall in the rupee’s exchange rate amid the dwindling forex reserves and the declining emerging market currencies.

The central bank, on Friday, had said the country’s forex reserves dropped by $5.69 billion to $634.58 billion in the week ended January 3.

Brent crude, the global oil benchmark, surged 1.12 per cent to $80.65 per barrel in futures trade.

BSE Sensex

Meanwhile, falling for the fourth straight session, the 30-share BSE Sensex tanked 1,048.90 points, or 1.36 per cent, to settle at 76,330.01. The NSE Nifty dropped 345.55 points or 1.47 per cent to close at 23,085.95.

“Global markets witnessed a significant sell-off, prompting a similar response in domestic markets due to strong US payroll data, suggesting fewer rate cuts in 2025. This has strengthened the dollar, driven up bond yields, and made the emerging markets less attractive,” said Vinod Nair, Head of Research at Geojit.

Market sentiment

“Recent GDP downgrades and slowing earnings amidst higher valuations are weighing heavily on market sentiment. Expect volatility in the near term, with the 2025 budget, Q3 results, RBI policy and Trump’s policies are key factors to define the trend in the short-term,” Nair said.