This is resulting in emerging markets (EM) currencies falling versus the dollar. "The US Dollar Index (DXY) has risen again and is poised to test the 105 levels soon. Increased costs lead to inflation, and the prices of goods and services rise, making finances tougher for the comman man. A weakened rupee makes imports costlier and impacts India Inc.’s profitability due to increased production costs. An increase in the Dollar index makes the dollar strong and depreciates the value of the Indian rupee. These include the stocks of American companies, treasury bonds, US government bonds, currency bonds and others. When the value of the dollar rises, the value of all underlying assets related to the dollar also rises. dollar is gaining strength or value when compared to the other currencies. Established in 1973, the US dollar index is used to measure the value of the US currency against the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.The value of the index is a fair indication of the dollar’s value in global markets. The rising dollar index The US dollar index continues to rise as it outperforms other currencies. At this point, timely aggressive fiscal policies are needed for India to sustain this blow," said Sonam Chandwani, Managing Partner, KS Legal and Associates. This has already affected the stock market with Nifty and Sensex falling even further today, and will continue to disparage the Indian economy in terms of fuel prices. Not only does this gap affect the foreign fund outflows negatively but it also affects the import of crude oil. However with regard to INR, the US's aggressive approach with its economy and India’s higher inflation projection are the main players in this transaction.The American monetary policies have seen higher rates of interest and a constrained supply of the USD. Although India is not the only one affected in this forex situation, Asian and Central European currencies have also witnessed fluctuations. 20 in the past decade and judging from the current scenario, it might fall even further.
This has lead to FIIs pulling out money and weakened the rupee," said Astha Mago, Associate Director at Client Associates.
Unending Ukraine war and consequent supply disruptions and spiralling oil prices have weakened growth prospects and increased cost of capital. Capital is flowing to safer havens like the US. Why has the rupee fallen? "Rupee breached 78 today but it is not out of line with other currencies vis a vis the US dollar. "Weak domestic markets, rising crude oil prices, strong dollar and persistent foreign capital outflows is expected to keep the domestic currency under pressure in the week ahead," IFA Global said in a note on Sunday. When the US dollar appreciates, it is considered to be a negative for emerging markets. When interest rates start rising, FIIs begin to pull out money from risky markets like India, and the rupee depreciation is adding to the concerns of foreign investors. One of the reasons behind the selloff is surging interest rates all across the world. Both the Nifty and the 30-share BSE Sensex are down over 10 percent since January. This sentiment is reflected in the equity markets too. Foreign institutional investors have pulled out over Rs 2,15,000 crore in the first five months of 2022, which is more than what they brought in 12 years between 2009 to 2021. The rupee is down 5% since January 2022 and the primary reason for this a stronger US dollar index, surging oil prices and dollar outflows from Indian equity and bond markets. NEW DELHI: The Indian rupee hit another record low on Monday, touching 78.20 against the US dollar on June 13.
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