The Indian rupee fell sharply by 84 paise to settle at 85.61 (provisional) against the US dollar on Thursday, as geopolitical tensions between India and Pakistan weighed heavily on the currency.Forex traders noted that investors sought safety in the US dollar due to heightened risk aversion in the domestic markets after Pakistan’s military made attempts to target military sites in northern and western India with drones and missiles, which were neutralised by India’s defence systems.In addition to geopolitical concerns, the strong US dollar and a rise in crude oil prices also pressured the rupee. The domestic currency opened at 84.61 on the interbank foreign exchange market and moved between a high of 84.52 and a low of 85.77 against the greenback. It ultimately closed at 85.61, registering a drop of 84 paise from the previous session.On Wednesday, the rupee had already depreciated by 42 paise to end at 84.77 due to market reactions to India’s military action against terrorist camps in Pakistan and Pakistan-Occupied Kashmir.Meanwhile, a senior US military official stated that the US is “watching the situation closely” after India’s strikes on terror targets in PoK and Pakistan’s Punjab province.“Given the ongoing geopolitical tensions and the strong US dollar, we expect the rupee to continue trading with a negative bias. Any further escalation could further pressure the rupee. However, FII inflows might provide some support at lower levels,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.At the same time, Defence Minister Rajnath Singh informed an all-party meeting that India’s recent military strikes in Pakistan and PoK had resulted in the deaths of at least 100 terrorists as part of Operation Sindoor, which is still ongoing.The US dollar index, which tracks the greenback’s performance against a basket of six major currencies, rose 0.46% to 100.07.Additionally, Brent crude prices increased by 1.05% to USD 61.76 per barrel in futures trade, further affecting the rupee.The domestic equity market also experienced significant volatility as news of the Indian Armed Forces foiling attempts by the Pakistani military to target military sites emerged. The BSE Sensex dropped by 411.97 points (0.51%), closing at 80,334.81, while the Nifty fell by 140.60 points (0.58%) to end at 24,273.80.Foreign Institutional Investors (FII) were net buyers, purchasing equities worth Rs 2,585.86 crore on Wednesday, according to exchange data.Meanwhile, the Federal Open Market Committee (FOMC) decided to keep US interest rates unchanged at 4.25%-4.50%, with Federal Reserve Chairman Jerome Powell stating that it remains unclear whether the economy will continue its steady growth or face pressure from trade uncertainties and inflation concerns.
