Rupee vs US Dollar: Rupee Hits Record Low of 84 Against US Dollar Amid Global Currency Fluctuations

On Friday, October 11, 2024, the Indian rupee hit an all-time low, plunging to 84 against the US dollar. This marked a significant moment for the Indian currency, which has been under pressure due to global financial market shifts and the strengthening of the US dollar. The currency’s latest dip reflects both domestic economic concerns and the broader international situation, where rising crude oil prices and heightened tensions in the Middle East have had an adverse impact.

The US dollar's value against a basket of six major currencies—comprising the yen, pound, Canadian dollar, Swedish krona, Swiss franc, and euro—continued to strengthen, with the dollar index hovering near the 102 mark. The strengthening of the dollar has put downward pressure on several global currencies, including the Indian rupee. As the greenback gains, other currencies tend to depreciate due to the inverse relationship between them. This means when the value of the US dollar rises, the rupee typically weakens, and vice versa.

The rupee’s depreciation can be attributed to several key factors. First, the strengthening of the US dollar has been driven by the American economy's relative resilience in the face of global uncertainty. Additionally, crude oil prices, which play a crucial role in India's economy as the country imports a significant portion of its oil needs, have surged in recent days. Brent crude futures were last trading 2% higher at $78.39 per barrel, while West Texas Intermediate (WTI) futures also saw an increase, trading at $74.87 per barrel. Rising oil prices typically widen India's trade deficit, increasing the demand for dollars and further weakening the rupee.

The rupee’s fall to 84 against the dollar is part of a broader trend that has been unfolding over the past few years. On July 19, 2022, the rupee first breached the 80 per dollar mark, a level that was once seen as a critical threshold. Since then, the currency has faced continued depreciation due to both external and internal factors. Global inflationary pressures, geopolitical risks, and the post-pandemic economic recovery have all contributed to the rupee’s ongoing slide.

Moreover, the geopolitical situation, particularly the escalating conflict in the Middle East, has created additional uncertainty in global financial markets. As tensions in the region mount, investors have sought refuge in safe-haven assets like the US dollar, driving up its value and putting further pressure on emerging market currencies such as the rupee. The rupee’s weakness is therefore not just a reflection of domestic economic challenges but also a result of broader international dynamics.

While the rupee's depreciation raises concerns, it also has implications for various sectors of the Indian economy. On one hand, a weaker rupee makes imports more expensive, particularly oil, which could lead to higher inflation in India. On the other hand, it provides a boost to export-driven industries, as Indian goods become cheaper and more competitive in international markets. The balance between these factors will play a crucial role in determining the overall impact of the rupee’s fall on the Indian economy.

The Reserve Bank of India (RBI) has been closely monitoring the situation, and there are expectations that the central bank may intervene to stabilize the currency if the depreciation continues. In the past, the RBI has used foreign exchange reserves to support the rupee during periods of volatility. However, with global factors such as the US dollar's strength and rising oil prices driving the current depreciation, the central bank's ability to influence the exchange rate may be limited.

Looking ahead, the rupee’s trajectory will largely depend on external factors, including the direction of US monetary policy and developments in the Middle East. Domestically, the government and central bank will need to remain vigilant to manage the economic fallout from the currency's depreciation. As global uncertainties persist, the rupee’s position in the international currency market remains vulnerable.

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In conclusion, the Indian rupee’s fall to a record low of 84 against the US dollar marks a significant moment in India’s economic narrative. While this depreciation poses challenges, particularly in terms of higher import costs, it also offers opportunities for exporters. How the government and central bank navigate these challenges will be critical in determining the future direction of India’s economy in the face of global uncertainties.