MUMBAI, Jan 9 (Reuters) – The Indian rupee weakened to its lifetime low on Thursday as the dollar strengthened on the back of expectations of slower-than-anticipated rate cuts by the Federal Reserve as well as uncertainty about the incoming U.S. President’s policies.
The rupee declined to 85.9325 against the U.S. dollar before closing at 85.8475, little changed on the day.
The local unit was under pressure through most of the session but state-run banks’ dollar sales, most likely on behalf of the Reserve Bank of India, helped limit the currency’s losses, traders said.
While the RBI has routinely stepped in to support the currency, analysts reckon that the central bank could loosen its ironclad grip in 2025.
“The RBI’s policy of tightly managing the rupee has run its course. INR overvaluation is impinging on exports and obstructing the government’s objective of strengthening the manufacturing sector,” ANZ Bank said in a note.
On the day, the dollar index was up 0.1% at 109.2, hovering just below its highest level in over two years hit last week, while most Asian currencies declined.
A sharp selloff in the world’s biggest government bond markets and a continued rise in the dollar sent shockwaves through financial markets on Thursday.
“The narrative of US exceptionalism is alive and well in FX markets, where investors are now hyper-sensitive to incoming headlines about Trump policy,” ING Bank said in a note.
A report that President-elect Donald Trump was contemplating the use of emergency measures to allow for a new tariff program helped boost the dollar on Wednesday, days after a Washington Post report had spurred speculation about diluted implementation of tariffs and weighed on the greenback.
