FX.co ★ Indian Rupee Slides on Pakistan Escalation

The Indian rupee experienced a decline to 85.7 per USD, down from its six-month high of 85.2 reached on May 5th. This drop was largely due to escalating tensions with Pakistan, prompting investors to shift their focus towards assets outside of India. The situation intensified as Indian forces launched strikes on Pakistani territory in response to terrorist attacks in Indian Kashmir last month, leading to further vows of retaliation from both countries. This development has cast doubt on the previously perceived safety of Indian assets in the region. The earlier influx of funds into India's domestic capital markets was a response to its growing economy and relatively stable currency. However, sharper capital outflows were curtailed by the recent drop in oil prices, a result of increased production by OPEC+ nations, which are the source of most of India's imports. Despite the heightened geopolitical tensions, India's growth prospects remain strong. The country's wide trade deficits make its economy relatively more resilient to the global tariff disputes initiated by the US, compared to other major Asian economies.