The Indian rupee strengthened to close at 94.21 against the U.S. dollar on Friday, ending its four-day losing streak that began on Monday. According to The Economic Times, the currency recovered from Thursday's close of 94.39 per dollar, marking a significant turnaround from recent weakness. The recovery was fueled by what traders described as 'mild' foreign investment into local equities and a slide in the global dollar index, with the dollar index weakening to 100.7 from 101.4 the previous day as a tepid U.S. jobs report lengthened odds on a Federal Reserve rate increase. The rupee's performance reflects improved global sentiment and a softer dollar environment, though traders remain cautious ahead of the weekend as developments in the US-Iran and Russia-Ukraine conflicts could influence global risk appetite when markets reopen on Monday.
Data from the National Stock Exchange (NSE) showed overseas funds were net buyers worth ₹1,355 crore in the Indian capital markets on Friday, according to The Economic Times. However, local funds were net sellers, indicating mixed domestic investment patterns. The softer-than-expected jobs growth might dial down expectations of a near-term rate hike by the US Federal Reserve, with traders noting that improved global sentiment and a softer dollar helped the domestic currency recover from recent weakness. Markets are now pricing in about 53% chance for a hike at the September meeting, as traders in the interest rate futures market scaled back the odds of a Federal Reserve rate hike to about 50%. The Federal Reserve's reduced urgency for rate hikes offers some comfort to market sentiment, though corporate hedging activities and intermittent maturities of non-deliverable forward contracts continue to limit the rupee's upward momentum.
On the domestic equity market front, Indian shares rose for a third straight session on Friday, even as markets ended off their day's highs due to profit booking at higher levels, according to Business Standard. The underlying sentiment was underpinned by the recent fall in crude prices to near pre-conflict levels and reduced expectations that the U.S. Federal Reserve will raise interest rates in the coming months. However, foreign institutional investors sold equities worth ₹311.82 crore on a net basis on Thursday, according to exchange data. Foreign investors extended their selling spree in June, withdrawing ₹49,340 crore ($5.16 billion) from Indian equities, triggered by a combination of early-month global risk aversion, a preference for developed markets, soaring U.S. bond yields, and stretched valuations in the domestic market. According to data from the Central Depository Services (India) Ltd, the total withdrawals by Foreign Portfolio Investors from Indian equities have surged to ₹2.7 lakh crore so far in 2026, surpassing the ₹1.66 lakh crore pulled out during the entire calendar year 2025.
Overseas investors have stepped up bond purchases in anticipation of an inclusion in the Bloomberg Global Aggregate Bond Index, buying nearly $500 million of debt in the first two days of July after a record $3.1 billion in June. According to The Hindu BusinessLine, this increased foreign investment activity is supporting the broader market sentiment despite the rupee's challenges. During the week, dollar demand linked to maturing positions in the NDF market and large merchant payments pressured the rupee, with traders noting that a move towards the 95.80-96 zone could spark a fresh bout of importer dollar buying, though it's quite likely the central bank won't allow a swift fall either. India's ICICI Bank is also mulling its first dollar bond sale in nearly nine years, after peers HDFC Bank and Axis Bank used the central bank's lower-cost hedging facility for foreign-currency issuance.
The Reserve Bank of India's FX measures have started to stabilise the Indian rupee, with measures including incentives to draw inflows via dollar deposits and overseas borrowings. As reported by The Hindu, the RBI is actively purchasing dollars to rebuild its foreign exchange reserves, which have dropped to roughly $672.6 billion from a February peak of $728.49 billion. This intervention strategy remains focused on preventing sharp currency movements while allowing gradual adjustments, with traders closely monitoring the balance between corporate dollar demand and the central bank's measured approach. The central bank's intervention strategy has provided some relief amid the challenging market conditions, though the rupee continues to face pressure from robust dollar demand from importers and corporate hedgers. The rupee has depreciated 0.4% in the current fiscal year so far and is expected to trade between 95 and 95.50 on Monday.
