Dollar vs Rupee / The dollar wall collapsed and the rupee made a strong comeback

Dollar vs Rupee: Leaving behind last week's decline, the Indian rupee made a strong comeback on Monday, registering impressive gains against the US dollar. Global and domestic factors supported the rupee, boosting investor confidence. A decline in the dollar index and improved third-quarter GDP figures contributed to the rupee’s strength. Notably, the rupee has not revisited its lifetime low from three weeks ago.

Key Reasons Behind Rupee’s Strength

1. Early Trade Gains

• The rupee opened at 87.36 in the interbank forex market and strengthened by 9 paise to reach 87.28.
• Support came as the US dollar index declined from its high levels.
• Domestic equity markets showed signs of recovery.
• India's economy grew by 6.2%, recovering from a seven-quarter low.

2. Decline in Dollar Index

• The dollar index, which measures the strength of the US dollar against six major currencies, fell by 0.34% to 107.19 on Monday.
• After a 0.59% rise last week, the dollar index saw a decline.
• Over the past month, the dollar index has dropped by 1.62%.
• However, in the last three months, it has strengthened by 0.73%.

3. Rise in Crude Oil Prices

• Global crude oil prices continued to rise.
• Brent crude futures increased by 0.59% to $73.24 per barrel.
• This volatility affected the rupee, but investors remained confident that domestic improvements would balance the impact.

4. Increase in Forex Reserves

According to the Reserve Bank of India (RBI):

• The country’s forex reserves rose by $4.758 billion to $640.479 billion in the week ending February 21.
• In the previous week, reserves had declined by $2.54 billion to $635.721 billion.
• Gross GST collection in February increased by 9.1% to approximately ₹1.84 lakh crore.

5. Impact of Dollar-Rupee Swap

• The RBI conducted a $10 billion dollar-rupee swap, injecting long-term liquidity into the system.
• In this process, banks sold dollars to the RBI while agreeing to repurchase the same amount at the end of the swap period.
• The swap settlement is scheduled for March 4 and March 6.

Future Prospects

• Further declines in the dollar index could strengthen the rupee.
• Continuous foreign capital inflows may stabilize the currency.
• A sudden spike in oil prices could put pressure on the rupee.
• India’s economic growth and policy reforms may contribute to rupee stability.

Conclusion

The Indian rupee made an impressive recovery against the US dollar on Monday, bringing positive sentiment among investors. The rupee remained strong due to the dollar index decline, robust GDP data, and RBI’s swap intervention. In the coming days, the rupee’s trajectory will depend on global and domestic economic factors.