The Indian rupee has been under pressure recently as foreign portfolio investors (FPIs) continue to pull money out and uncertainty over a US trade agreement dampens risk appetite. These twin forces are keeping the currency on the back foot, pushing traders and policymakers to watch flows and headlines closely.
Why the rupee is slipping
Persistent FPI outflows
Foreign portfolio investors have been reducing exposure to emerging market assets, driven by profit-taking, global rate expectations, and a search for safer yields. When FPIs sell equities or debt, they convert rupees into foreign currency, increasing demand for dollars and weighing on the rupee.
Stalemate over a US trade deal
Uncertainty about a potential US trade agreement has dented global risk sentiment. When trade talks stall, investors often shift away from higher-risk currencies and assets. The resulting risk-off mood tends to strengthen the dollar and puts additional downward pressure on the rupee.
Other contributing factors
- Global rate dynamics: Expectations of tighter monetary policy overseas can attract capital away from emerging markets.
- Crude and commodity prices: Rising oil costs increase import bills and can widen the current account deficit, pressuring the currency.
- Domestic data and policy: Inflation, growth indicators and central bank signals all influence investor confidence and capital flows.
Market impact and near-term outlook
Currency volatility can affect importers, exporters and financial markets. A weaker rupee raises costs for oil and other imports, adding to inflationary pressures, while exporters may gain competitiveness. Short-term direction will be shaped by FPI flow patterns, any shifts in US trade negotiations, and global risk sentiment.
What investors and policymakers should watch
- FPI flow reports: Weekly inflows and outflows provide an immediate read on investor appetite.
- Trade negotiations: Any breakthroughs or setbacks in the US trade talks can quickly swing sentiment.
- Global interest rate cues: Comments from major central banks affect capital movement to and from emerging markets.
- Domestic inflation and data releases: Strong inflation could prompt tighter monetary policy, influencing the currency.
For now, the rupee’s path will largely reflect the tug-of-war between capital outflows and external uncertainty. A durable recovery will likely require steadier foreign flows or clearer progress on trade talks to restore risk appetite.