Rupee falls 25 paise against dollar in early trade: What's weighing on the currency

The Indian rupee opened 25 paise weaker on Thursday (June 11), tracking a sharp surge in crude oil prices after fresh escalation in the conflict between Iran and the United States heightened concerns over global energy supplies.

The domestic currency opened at 95.52 against the US dollar, compared with Wednesday's (June 10's) close of 95.27, marking a decline of 25 paise.

Pressure on the rupee intensified after Brent crude jumped to as high as $95.50 per barrel following overnight US strikes on multiple targets in Iran, raising fears of

prolonged disruptions to oil flows from the West Asia.

Iran responded by announcing the closure of the Strait of Hormuz and launching counter-attacks on 18 US military targets in Kuwait and Bahrain. The move represents a significant escalation in tensions and has renewed concerns over supply disruptions through one of the world's most critical oil transit routes.

Currency traders said the Reserve Bank of India (RBI) appears to be stepping up efforts to prevent excessive depreciation in the rupee after undertaking several measures in recent weeks to support the currency.

"It appears that after taking several steps to support the currency, the RBI is now reinforcing its intent to prevent any further weakness in the rupee," a currency trader at a bank said.

However, traders cautioned that central bank intervention alone may not be enough to stabilise the currency if crude prices continue to rise.

"For the support to be meaningful and sustained, it would need backing from other factors, particularly a moderation in oil prices," the trader added.

Analysts at ING Bank said the latest developments indicate that a resolution to the conflict remains distant and energy flows from the Persian Gulf are likely to remain constrained for the foreseeable future.

Apart from higher oil prices, the rupee is also facing pressure from a weaker global risk environment after US equities extended losses overnight.

Meanwhile, US headline inflation accelerated to 4.2% year-on-year, its highest level in more than three years. However, the core inflation reading rose less than expected, keeping near-term expectations for Federal Reserve interest rate cuts largely unchanged.

Market participants will continue to monitor developments in the West Asia, movements in crude oil prices and RBI actions for further cues on the rupee's trajectory.

-With Reuters inputs