MUMBAI: The Indian rupee weakened slightly on Friday, falling for a second consecutive week, as the dollar recovered from a more than two-year low and outflows pressured local stocks.
The rupee closed at 86.1475, down from its previous close of 86.0750, and 0.4% lower from a week earlier.
India’s benchmark equity index the Nifty 50, fell 0.7% this week, even as MSCI’s gauge of regional stocks excluding Japan was 0.8% higher.
In the near-term, the rupee is “likely to hover closer to 86.50 than 85.50,” a trader at a large private bank said.
Corporate dollar demand and equity outflows weighed on the Indian currency on the day, the trader said.
Overseas investors have net sold about $300 million of Indian equities over July so far after infusing $1.7 billion in the previous month.
The dollar index was on course for its second consecutive weekly rise, boosted by strong U.S. economic data which diminished wagers on rate cuts by the Federal Reserve.
Interest rate futures markets are currently pricing in about 45 basis points of Fed rate cuts for the remainder of the year, down from closer to 50 basis points at the start of the week.
Pause in dollar rally offers relief to Indian rupee after 86 breach
“We expect the residual 14bp priced in for September to be gradually reduced,” ING said in a note.
The “hawkish rethink” in Fed rate cut expectations could hurt the euro while an election in Japan over the weekend runs the risk of driving the yen below 150, ING said.
The Fed is scheduled to hold a total of four meetings over the rest of 2025, including one on July 29-30.
The euro and the yen were on course for weekly declines of 0.5% and 0.8%, respectively.
Developments in U.S.-India trade negotiations will be in focus ahead of the August 1 deadline for country-specific tariffs on exports to the United States.
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