The Indian rupee reversed its recent appreciating trend to decline the most in five weeks, with traders rushing to sell the local unit amid rising geopolitical tensions with China.
During the day, a section of the media reported that the Indian Army had asked villagers near Doklam to vacate their homes. The government later denied the report after trading ended on the financial markets in Mumbai.
The escalation of the war of words between North Korea and the US added to the greenback’s strength globally, as investors sought the safety of dollar-backed investments.
“The rupee has weakened sharply following the escalation of geo-political tensions,” said Sajal Gupta, head of forex and rates at Edelweiss Securities. “With increasing news on troops coming in, traders appear to have reversed their short positions in the USD/INR pairing.”
The rupee Thursday lost about 0.40% or 25 paisa to close at 64.08 a dollar, the biggest fall since July 03 this year, show data from Bloomberg.
After the rupee’s rise last week, many traders went to short-sell the dollar against the local unit. With the sudden rise in geopolitical tensions that could threaten economic prospects, traders may have exited such positions.
“A sudden risk-off sentiment has led to the rupee’s loss,” said Anindya Banerjee, currency analyst at Kotak securities. “The fall in equities among emerging markets has put pressure on respective domestic currencies. The rupee may be under pressure for the next few days.”
Last week, the rupee hit a new two-year high at 63.58 a dollar amid expectations of higher overseas money flows into the country.