- Indian Rupee (INR) falls as oil prices rise
- Oil prices rise to $100 per barrel
- The US Dollar (USD) is rising versus major peers
- Inflationary expectations rise with the oil price
The US dollar-to-Indian rupee (USD/INR) exchange rate is rising for a second straight day. The pair rose 0.28% in the previous session, settling on Wednesday at 92.22. At 17:30 UTC on Thursday, the pair is up 0.38% to 92.57.
The Indian Rupee fell to a record low against the US dollar amid surging oil prices.
India imports over 80% of its energy requirements, making both the economy and the currency vulnerable to higher oil prices.
According to analysts, every $10 increase in oil prices raises India’s current account deficit by around 0.4 to 0.5% of GDP.
While it is difficult to know how the Middle East conflict will develop, a prolonged closure of the Strait of Hormuz could push oil prices significantly higher. However, any de-escalation could see oil prices fall back toward pre-conflict levels, helping support the rupee.
The US Dollar is rising across the board. The US Dollar Index, which measures the US dollar against a basket of major currencies, is up 0.47% to 99.69, after gains yesterday.
The US dollar has risen to its highest level since late November as the war with Iran escalates.
Iran’s new supreme leader said that the Strait of Hormuz will remain closed. As a result, oil prices surged to $100 a barrel, with further increases expected the longer the Strait of Hormuz remains closed.
Rising oil prices are fuelling inflation expectations. Treasury yields are also rising, though gains have been limited by concerns about the fiscal outlook.
The Federal Reserve is widely expected to leave interest rates unchanged next week. However, attention will be on the updated dot plot for clues about policymakers’ expectations for rates going forward.
On the data front, US jobless claims came in at 213K, down by 1,000. Attention is now turning to US core PCE, the Fed’s preferred gauge for inflation, although the data is already considered somewhat outdated as it does not include the recent increase in energy prices.
