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The Indian rupee recently reached a historic low, falling by 0.12 to trade at 84.09 against the US dollar. This decline is largely attributed to surging crude oil prices and escalating geopolitical tensions in the Middle East. The US dollar’s strength, with the dollar index rising from $100.50 to $102.40, has also added pressure on the rupee.
Experts predict that ongoing volatility in the Middle East will keep oil prices elevated, weakening the rupee further in the short term. Brent crude has surged to $78.92 per barrel, up from nearly $69 on September 30, driven by fears of potential supply disruptions due to the conflict.
The rupee’s decline has also been fueled by significant outflows from foreign portfolio investors (FPIs), who sold shares worth ₹55,000 crore in the Indian stock market over the past nine days. Jateen Trivedi of LKP Securities noted that continued foreign institutional investor (FII) outflows have exacerbated the rupee’s weakness, with further declines possible.
Impact on Gold Prices and Global Markets
Gold prices have remained strong, trading above $2,635 on Comex, and increased by over ₹400 to ₹75,750 on the Multi Commodity Exchange (MCX). Rising jobless claims and persistent inflation, driven by higher crude oil prices, have supported the positive trend.
In India’s national capital, gold prices surged by ₹1,150 to ₹78,500 per 10 grams, driven by fresh buying from jewellers and global market trends. Increased local demand, along with global factors, contributed to the rise.
Geopolitical tensions in the Middle East have also impacted global financial markets. Israeli stocks fell sharply, with the benchmark TA-35 Index dropping 3.1% before a slight recovery. The selloff extended to Egypt, as investors offloaded assets amid rising uncertainty.
Fed Reserve’s Interest Rate Outlook
Meanwhile, the US Federal Reserve has signaled confidence in cutting interest rates, with Chairman Jerome Powell suggesting that policy adjustments are likely. The Fed’s move is influenced by inflation nearing its 2% target, leading to expectations of rate cuts designed to stimulate economic growth by lowering borrowing costs.
A reduction in US interest rates could have far-reaching effects on the global economy. A weaker dollar might make US exports more competitive and affect exchange rates globally, potentially encouraging investment in riskier assets and emerging markets. However, lingering global uncertainties or a US economic slowdown could dampen global growth prospects.
