Rising Middle East tensions impacted on Asian currencies and risk assets, causing the Indian rupee to fall to its lowest closing level ever on Monday. However, prospective dollar sales by the Reserve Bank of India helped limit the local unit's losses. The rupee closed at 83.4500 against the US dollar, down from 83.4125 at the closing on Friday. Earlier this month, the native currency had fallen to a record low of 83.4550.
"The strong infusion of foreign capital is helpful. The founder of SS WealthStreet, a research business with offices in New Delhi, Sugandha Sachdeva stated that the central bank has also been aggressively interfering in the markets to reduce volatility in the local unit.
She did, however, caution that there may be "increased pressure" on the rupee if the Middle East situation worsened and that the prognosis for the home currency depends "significantly" on Israel's response to Iran's recent strike.
Following Iran's weekend retaliatory strike on Israel, most Asian currencies saw declines. Tensions in the area have increased because of Israel's invasion of Gaza following a Hamas strike on October 7.
The dollar index was trading close to 106, which compares the value of the US dollar to a basket of six important world currencies. Aside from the Middle East turmoil, investors will be watching changes in the rates on US Treasury bonds.
Following better-than-expected U.S. inflation statistics, the Federal Reserve's policy expectations changed, and the yield on the 10-year Treasury note increased little. Only around two rate decreases are anticipated by investors this year.
"We no longer think policymakers will gain the confidence they (Fed) need to start cutting in June, or even at the following three meetings, absent clear signs of labour market deterioration," a report from BofA Securities stated. "As of right now, we anticipate rate cuts from the Fed in December."
