India's foreign exchange market witnessed a sharp movement on Thursday (April 24), as the Indian rupee weakened by 22 paise to close at 85.67 against the US dollar. The drop was largely triggered by rising geopolitical tensions, specifically a terror attack in Pahalgam, Jammu & Kashmir, and a surge in global demand for the dollar.

Geopolitical Events Spark Risk Aversion

Traders attributed the initial panic to a deadly terror attack in Pahalgam that claimed the lives of 26 civilians, a tragic incident that escalated regional instability. In response, India downgraded diplomatic ties with Pakistan, suspended the Indus Water Treaty, and halted land transit via the Attari border, signaling a firm stance.

These developments led to a risk-off sentiment among investors. “Events like these initially drag the rupee due to panic selling. Past instances like Uri (2016) and Pulwama (2019) showed similar trends, but the rupee usually rebounds after India responds decisively,” noted Amit Pabari, MD at CR Forex Advisors.

Currency Performance and Market Opening

The rupee had opened at 85.60 and hit an intraday low of 85.67, down from its previous close of 85.45 on Wednesday (April 23). This marked the second consecutive session of decline, following a 26 paise fall the previous day.

While domestic equity markets remained relatively stable, the foreign exchange market felt the pressure from the geopolitical tremors and shifting global cues.

Global Dollar Strength Adds Pressure

Beyond domestic tensions, the strengthening of the US dollar was another key reason behind the rupee’s decline. The dollar index, which compares the greenback to a basket of six major world currencies, has shown an uptrend, rising from 97.92 to near the 100 mark.

This rise is attributed to easing US-China trade tensions, hopes of tariff rollbacks, and a softer stance from the White House regarding the Federal Reserve’s independence.

According to ING Bank, “The dollar has found support from talk of tariff rollbacks on Chinese goods and a milder tone from the White House on Fed policy.”

Strong Equity Inflows but Bond Outflows Persist

Interestingly, despite the negative currency movement, foreign institutional investors (FIIs) pumped in ₹3,332 crore into Indian equities on April 23. This inflow, however, was insufficient to offset broader market nervousness and bond market outflows, leading to overall capital outflows in the financial system.

Analysts observed that while equity inflows tend to support the rupee, they can be negated by simultaneous bond market exits, especially during geopolitical uncertainty.

Brent Crude Prices Offer Little Cushion

Adding to the rupee's woes, Brent crude oil prices remained elevated, hovering near $66.10 per barrel. Since India imports over 85% of its crude oil, high oil prices translate into a heavier import bill, increasing dollar demand and thereby putting pressure on the rupee.

There was no significant relief on the import cost front, further weakening the local currency.

Historical Trends: Rupee's Resilience After Shocks

It is important to view this development through a historical lens. Past episodes, such as:

• Uri attack (2016)

• Pulwama attack (2019)

...initially led to rupee depreciation due to investor panic. However, the currency generally stabilized or appreciated in the following weeks as government responses reduced uncertainty and restored investor confidence.

Such trends may hold lessons for current market participants who are navigating the turbulence in April 2025.

What’s Next for the Rupee?

Experts believe the rupee could face near-term volatility, but stability may return once the geopolitical dust settles. They advise watching central bank cues, especially any intervention by the Reserve Bank of India (RBI) in the currency market, which could smoothen excessive volatility.

Additionally, upcoming US economic data, and the Federal Reserve’s next policy statement, will play a crucial role in shaping dollar strength and, by extension, the rupee’s trajectory.

Investor Outlook

Investors are advised to maintain a cautious stance, diversify portfolios, and track both local and global developments closely. Currency-sensitive sectors like IT, Pharma, and Oil Marketing Companies (OMCs) might see stock price movement aligned with the rupee’s fluctuations.

Conclusion

The Indian rupee's depreciation to 85.67 against the dollar on April 24 is a complex outcome of geopolitical shocks, global dollar strength, and persistent crude oil prices. While equity inflows signal some investor confidence, broader risk-off sentiment dominates the currency market for now.

Looking ahead, decisive responses from the Indian government, a possible RBI intervention, and evolving global cues will determine whether the rupee bounces back like it did post-Pulwama and Uri, or continues to weaken.

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