Rupee Slides to 85.66 Against US Dollar Amid Weak Equities and Persistent FII Outflows

Mumbai, 7 July 2025: The Indian rupee declined by 26 paise to touch 85.66 against the US dollar in early trading on Monday, weighed down by persistent foreign institutional investor (FII) outflows, subdued domestic market sentiment, and broader global economic uncertainty.

Weak Start in Domestic Markets and Foreign Fund Outflows Pressurise Rupee

At the interbank foreign exchange market, the rupee opened at 85.53 and depreciated further to 85.66, compared to its previous close of 85.40 on Friday. The decline aligns with data from Friday, 5 July, when FIIs pulled out ₹760.11 crore from Indian equities, according to exchange filings.

Adding to the pressure, the BSE Sensex fell 170.66 points to 83,262.23, and the NSE Nifty dropped 53.75 points to 25,407.25 during early trade, reflecting broader investor caution across domestic markets.

Global Risk Aversion and Dollar Fluctuations Compound Volatility

Globally, investor sentiment remains cautious amid geopolitical instability, uneven macroeconomic indicators, and trade policy concerns, particularly from the United States. The US Dollar Index-which tracks the greenback against six major global currencies—fell 0.10% to 97.08, indicating weakness in the dollar, but not enough to support the rupee due to stronger local headwinds.

The US economy is currently navigating tariff uncertainties, slower job growth, and a Federal Reserve policy that has paused rate hikes despite persistent inflationary concerns. These factors are contributing to uneven capital flows into emerging markets, including India.

Brent Crude Softens, Yet Relief for Rupee Remains Limited

On the commodities front, Brent crude prices eased to $67.85 per barrel, down 0.66%, which in usual circumstances would ease the burden on India’s current account deficit. However, analysts note that the benefits of lower oil prices are being offset by capital outflows and weakening sentiment in equity markets, limiting any substantial support to the rupee.

Forex Reserves Hit Record High, But Offer Limited Short-Term Cushion

According to the Reserve Bank of India (RBI), India’s forex reserves rose by $4.84 billion to $702.78 billion for the week ending 27 June 2025—a historic high. This provides long-term stability and a cushion against external shocks, but analysts caution that daily currency movements are still largely influenced by investor flows and market sentiment, especially during high volatility.

What’s Behind the Rupee’s Slide? 

While the rupee remains fundamentally stable on account of robust forex reserves, low external debt, and manageable inflation, its current depreciation is largely sentiment-driven. The FII withdrawal, influenced by global uncertainty and a preference for dollar-denominated assets, is playing a key role in the rupee’s weakening trend.

Additionally, with key economic data releases expected later this week—including US inflation figures and India’s IIP and CPI numbers—investors are exercising caution. The possibility of short-term volatility persists, particularly if macroeconomic indicators suggest tighter monetary policies globally or further weakness in domestic demand.

Outlook: Rupee May Face Continued Pressure Without Policy Support

Experts suggest the rupee may continue to trade under pressure unless there is a rebound in FII inflows or if domestic equities recover from current weakness. The RBI is expected to monitor the situation closely, although no direct intervention has been reported so far.

In the absence of fresh, positive triggers, the rupee’s trajectory in the coming days is likely to be influenced by global risk sentiment, the direction of crude oil prices, and the movement of the dollar index.

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