US Dollar Reaches Two-Month High
New Delhi, Sept. 24 — The US dollar has surged to its highest level in nearly two months as anticipation grows for another potential interest rate hike from the Federal Reserve. This uptick was further supported by rising oil prices amid uncertainties in peace talks involving Iran.
The dollar index, which measures the US currency against a range of major currencies, has been on the rise for four consecutive sessions, increasing by 0.51% to reach 101.06 after hitting 101.23 earlier in the day—its highest since July 29.
This trend followed the Federal Reserve’s decision last week to increase its benchmark interest rate by 25 basis points, bringing it to a range of 3.75%-4.00%. Several officials from the Fed have since suggested that additional rate hikes may occur if inflation does not show signs of abating.
On the other hand, the Indian rupee fell by 11 paise, closing at 95.73 against the US dollar on Wednesday, driven down by the dollar’s strength and a slight rebound in crude oil prices. The rupee even reached an intraday low of 95.76 before settling at 95.73, which is an 11 paise drop from the previous close.
Seema Srivastava, a Senior Research Analyst at SMC Global Securities, noted that a stronger US dollar, backed by robust American economic data and an assertive Federal Reserve, generally poses a significant challenge for Indian equity indices like the Sensex and Nifty 50.
Srivastava elaborated that when the dollar gains strength and US Treasury yields climb, foreign institutional investors often withdraw their investments from emerging markets such as India, seeking safer and potentially higher returns in the US. This consistent outflow can heavily affect large-cap stocks, dragging down the overall market and narrowing domestic liquidity.
Additionally, a stronger dollar means the Indian Rupee tends to weaken. Since India is highly reliant on imported crude oil—over eighty percent of its needs—a depreciating Rupee considerably inflates the import bill and exacerbates the current account deficit, even if global oil prices remain stable.
She also pointed out that the Reserve Bank of India may need to postpone essential interest rate cuts in order to stabilize the currency, resulting in high borrowing costs for corporations and potentially dampening equity valuations.
Kunal Sodhanim, Head of Treasury at Shinhan Bank, described the combination of a rising US dollar and increasing crude oil prices as a tough scenario for Indian equities. Both factors can apply pressure on the rupee and elevate the country’s import expenses.
“A persistent rise in crude prices can contribute to domestic inflation, increase the trade deficit, and possibly limit monetary easing. Likewise, a stronger dollar raises currency-related concerns for foreign investors. This situation could lead to heightened volatility in the Sensex and Nifty, especially if it is coupled with higher US Treasury yields and continued selling by foreign portfolio investors,” Sodhanim remarked.
While the overall market sentiment may appear negative, Srivastava observed that this shift in currency can create different impacts across sectors. Export-driven industries such as Information Technology and Pharmaceuticals could benefit, as their revenue in dollars translates to greater profits when converted to rupees.
On the flip side, sectors that heavily rely on imported materials, including auto, fast-moving consumer goods, and oil marketing companies, alongside those with significant dollar-denominated debt, might face serious margin challenges. In the end, a rising dollar contributes to a complex environment marked by capital outflows and inflationary pressures tied to imports.
