Indian Rupee Rises to Over 3-Week High

The Indian rupee fell to around 95.5 per dollar, retreating from multi-week highs as renewed Gulf tensions lifted crude oil prices. Market pressure intensified after US-Iran diplomatic efforts failed to make progress, while reports indicated that Iranian missile attacks targeting Bahrain, Kuwait, and other regional locations were either intercepted or unsuccessful. The escalation contributed to a third straight daily increase in oil prices, with Brent crude advancing 1% to nearly $97 per barrel. At the same time, continued foreign portfolio outflows added to the rupee's weakness as foreign investors were net sellers of more than $800 million worth of Indian equities on Tuesday. Attention is now turning to the RBI's policy meeting on Friday. While most economists expect interest rates to remain unchanged, markets have increasingly begun pricing in the possibility of future tightening as policymakers navigate inflation risks from higher oil prices.

The Indian rupee strengthened to around 94.7 per dollar, reaching three-week highs as sustained intervention by the Reserve Bank of India boosted confidence in the currency. Expectations that the central bank will continue to curb excessive exchange-rate volatility ahead of its upcoming policy decision also supported sentiment. Markets are now focused on the RBI's policy meeting, where the benchmark repo rate is widely expected to remain unchanged at 5.25%. Investors will closely watch the central bank's updated inflation and growth forecasts, as well as any signals on measures to attract foreign capital and support external financing conditions. However, the rupee's gains were limited by renewed geopolitical tensions in the Middle East, which pushed Brent crude above $93 per barrel. Meanwhile, uncertainty surrounding US-Iran negotiations and continued foreign portfolio outflows from Indian equities capped further appreciation.

The Indian rupee hovered near 95.5 per dollar, strengthening after the holiday break on reduced pressure from elevated oil prices and easing Middle East tensions. Optimism grew following reports that the United States and Iran were moving toward extending their ceasefire arrangement for 60 days while continuing negotiations over Tehran’s nuclear program. Crude prices declined on expectations that disruptions to energy flows through the Strait of Hormuz could ease if diplomatic talks progress further. Brent crude fell toward $92 per barrel and remained on track for its steepest monthly decline since 2020, offering some relief to oil-importing economies. Meanwhile, traders also pointed to likely dollar outflows linked to global equity index rebalancing as a near-term source of volatility for the Indian currency. The rupee has weakened roughly 5% since the conflict involving Iran escalated earlier this year and remained on track for a monthly decline.