FX.co ★ Rupee Drops to 8-Week Low on Middle East Tensions and Trade Jitters

On Friday morning, the Indian rupee sank to its lowest point in eight weeks, hitting a value of 86.17. This decline came amidst increased geopolitical tensions and uncertain trade dynamics. The rupee's drop was triggered by Israel’s airstrikes on Iran, carried out without the backing of the U.S., leading to fears of potential Iranian retaliation and causing a nearly 10% spike in oil prices. The surge in oil prices heightened concerns about India's trade balance, exerting additional pressure on the rupee. Compounding the external pressures, President Trump suggested he might extend the July 8 tariff deadline, yet hinted at a firmer approach by planning to inform trade partners of unilateral tariff rates through official correspondence. Nevertheless, there was some mitigation of the rupee’s losses due to indications of progress in U.S.-India trade negotiations, particularly concerning industrial goods, agriculture, and tariffs. India's Foreign Ministry expressed optimism about reaching a conclusive agreement before the expiratory truce. On the domestic front, inflation eased to 2.82% in May, representing the lowest rate since February 2019, down from April's rate of 3.16%, and falling below expectations, approaching the Reserve Bank of India's lower 2% tolerance threshold.