19.06.2025 06:57
Escalating Middle East tensions, fueled by the ongoing conflict between Israel and Iran and the potential for US military intervention, propelled the Indian Rupee to a two-month high against the US Dollar on Thursday. The USD/INR exchange rate briefly touched 86.65, reflecting a flight to safety as investors sought refuge in the US Dollar amidst growing geopolitical uncertainty. Bloomberg's report suggesting a potential US strike on Iran this weekend significantly exacerbated the situation, prompting widespread concerns about a potential global escalation.
Adding to the strengthening of the US Dollar was the Federal Reserve's revised outlook on interest rate cuts. The Fed's decision to maintain a less aggressive path of rate reductions in 2026 and 2027, predicting only two cuts for the year, further bolstered the Greenback's appeal. This move, following four consecutive meetings where interest rates remained unchanged within the 4.25%-4.50% range, contributed to the US Dollar Index (DXY) reaching a weekly high near 99.10.
The conflict's impact extends beyond currency markets. The increased geopolitical risk has triggered a surge in demand for safe-haven assets, boosting the US Dollar's value. Defense Secretary Pete Hegseth's statement on Fox News, confirming the US's defensive posture in the Middle East and its pursuit of a peace deal, while attempting to reassure, highlighted the region's precarious state and the considerable stakes involved. Financial market experts are cautioning about the potentially disastrous global ramifications should the United States become directly embroiled in the conflict. The US has already taken proactive measures, deploying additional defense equipment to protect its Middle Eastern military installations earlier this week.
Conversely, the Indian Rupee displayed weakness against other major currencies on Thursday, largely attributed to the prevailing bearish market sentiment and rising oil prices. The Israel-Iran crisis has suppressed appetite for riskier assets, simultaneously driving up oil costs and further weighing on the Rupee's performance. This combination of factors created a challenging environment for the Indian currency.
