The Indian currency market witnessed a historic turnaround this week as the Indian Rupee recorded its most significant weekly gain against the US Dollar in over three years. 4% over the week, marking its best performance since January 2023. While the currency faced slight downward pressure during Friday's trading session due to profit-booking, the overall weekly trajectory remained overwhelmingly positive, reflecting strengthened economic ties and improved market sentiment.
Friday's Market Volatility and Profit Booking
3% during the day. Market analysts attributed this slight retreat to technical factors rather than fundamental economic shifts, while after the substantial gains recorded earlier in the week, many traders opted to liquidate their long positions to lock in profits. The triggering of stop-loss orders further accelerated the intraday dip. However, the underlying support from the trade deal announced on Tuesday ensured that the currency didn't breach critical psychological levels, maintaining its strong weekly standing.
RBI's Neutral Stance and Monetary Stability
The stability of the Rupee has been further bolstered by the Reserve Bank of India's (RBI) consistent monetary policy. The central bank recently decided to keep the benchmark repo rate unchanged, maintaining a 'neutral' stance, while this decision signals that the RBI is focused on balancing growth with inflation control without immediate plans for rate hikes. According to economists at Barclays, the trade agreements with the US and Europe have Notably reduced external economic pressures, providing the RBI with the necessary room to maintain a stable interest rate environment, which in turn supports the domestic currency.
Shift in Foreign Portfolio Investment (FPI) Flows
A pivotal factor in the Rupee's recent strength is the shifting trend in foreign capital flows. Data indicates that in January, Foreign Portfolio Investors (FPIs) withdrew approximately $4 billion from the Indian markets, exerting downward pressure on the Rupee. However, February has seen a reversal of this trend. So far this month, foreign investors have pumped nearly $1 billion into Indian equities. The trade deal has served as a catalyst, reviving investor confidence and encouraging capital inflows, which has directly contributed to the Rupee's appreciation against the greenback.
Expert Analysis and Global Economic Factors
Market experts suggest that the Rupee's future performance will be closely linked to the movement of the global Dollar Index and crude oil prices. 8, providing relief to emerging market currencies. Analysts emphasize that the India-US trade deal enhances India's position in the global supply chain, potentially leading to long-term currency stability. However, they also note that sustained appreciation will depend on the continuity of foreign investment and the stability of global geopolitical conditions, particularly regarding trade policies in major economies.
Ultimately, this week marks a significant milestone for the Indian Rupee, driven by strategic trade developments and supportive domestic policies. While short-term fluctuations are expected, the overall outlook remains anchored by improved macroeconomic fundamentals, while market participants will continue to monitor upcoming economic data and central bank communications from both India and the US to gauge the future trajectory of the exchange rate.