The Indian rupee remained stable at 95.69 per dollar on Wednesday, barely changed from the previous session's 95.68, as risk assets gained across Asia and Europe amid expectations that the uneasy West Asian truce will hold. However, new US strikes in Iran targeting a military site have complicated peace talks, with President Trump stating he was "not satisfied" on a deal with Iran and dismissing Iranian reports of joint shipping management through the Strait of Hormuz. According to The Economic Times, the currency opened at 95.75 and traded between 95.80 and 95.64 during the session, with dollar sales from state-run banks helping stem further losses at the weakest level. This stability comes after the rupee had cumulatively lost about a percentage point on average each month since the start of FY26, with the currency having weakened nearly 3% in FY27 so far. The rupee's resilience reflects investor confidence that the current geopolitical tensions may not escalate further, providing some relief from the ongoing pressure.
Brent crude prices rebounded as hopes for a quick resolution faded, providing significant support to the rupee amid the day's steady gains in risk assets. As per The Economic Times, dealers reported episodic interventions by the central bank that bolstered the local unit, with the currency's recovery supported by falling oil prices and expectations of a West Asian truce. This development represents a notable shift from earlier concerns when Brent crude had surged to the vicinity of $100 per barrel, adding significant pressure on the rupee amid escalating geopolitical tensions. The oil price rebound has helped ease some of the currency's vulnerability to energy price volatility that had previously kept the rupee under pressure.
American and British companies significantly boosted currency hedging last quarter as global markets faced turbulence from the war in Iran and energy price surges. According to The Economic Times, corporate treasurers on average protected 57% of their foreign-exchange exposure using financial instruments in the first three months of the year, up from 49% in the fourth quarter, as per currency hedging platform MillTech. This was the highest level since the firm began querying corporations in the first quarter of 2024. The Bloomberg Dollar Spot Index gained about 1% in the first quarter on the back of a rally in March as the Iran war sparked haven buying of the greenback and tempered bets on Federal Reserve policy easing. Companies cited higher import costs and earnings volatility as key impacts, with the JPMorgan Global FX Volatility Index spiking in late March to the highest since mid-2025.
Benchmark 10-year sovereign note yields stayed below 7% for the second day running, retreating in lockstep with US bond yields that headed for their lowest level in about two weeks, according to The Economic Times. Market benchmark indices settled lower on Wednesday, with the BSE Sensex closing 141.90 points (0.19%) lower at 75,867.80 and the NSE Nifty 50 marginally dipping 6.55 points (0.03%) to close at 23,907.15. As per The Hindu, the weakness was attributed to an uptick in American currency and weak domestic markets. Foreign institutional investors offloaded equities worth ₹2,407.87 crore on Tuesday, according to exchange data. Across Japan and South Korea, stocks climbed to record levels amid lower oil prices and big-bang AI investments, while pan-Europe stocks climbed amid an unmoved dollar index around 99.
State-run banks' intermittent dollar sales are continuing to cushion the rupee's decline, providing ongoing support to the currency amid the ongoing pressure. As per The Economic Times, dollar-rupee forward premiums dropped on Wednesday, with the 1-year implied yield down 8 bps at 3.23%. A trader at a foreign bank noted that "It seems like the market got ahead of itself in pricing rate hikes by the RBI and that is being trimmed now in the swaps market." The 1-year overnight index swap rate was last at 6.13%, down 17 bps over the week so far, with India's central bank slated to announce its policy decision on June 5. Attention has shifted toward the upcoming RBI Monetary Policy Committee meeting scheduled between June 3 and 5, with the rupee's stability providing some relief from earlier pressure.
