By Somya Panwar
On Monday (February 3), the Indian rupee plunged below the 87 level to an all-time low of 87.29 per dollar after US President Donald Trump imposed tariffs on Canada, Mexico and China which led the dollar index surge more than a percent, triggering fears of a broad global trade war.
The US dollar relative to a basket of six foreign currencies is measured by the dollar index which rose to 1.24 per cent to trade at Rs 109.84 per cent. On Friday, the domestic currency had settled at 86.62 against the US dollar.
Analysts warn that new US tariffs may spark a global trade war. Trump imposed 25% tariffs on imports from Mexico and Canada and 10% on China, with energy imports from Canada facing a lower 10% tariff. In response, Canada has imposed 25% tariffs on US imports, while Mexico plans to follow. China may take the issue to the WTO.
Financial Services Company Angel One has said in a report that the main driver of the rupee’s depreciation is strengthening the US dollar index (approaching 110), which has been bolstered by higher interest rates expectations and US jobs data.
The rising position of dollar refers to an increase in the value and continues to be attractive as the treasury yields that expands the contracts that investors or companies have entered or buying or selling dollar at future dates.
10-year yield spread of US-German has also risen up to a five-year high of 2.15 per cent.
As per the reports the long dollar position amid a pro-US sentiment signal, might remain elevated in the current quarter despite of the ongoing risk off. The long dollar position as a trading strategy indicated the appreciation of US dollar, relative to other currencies. Hence, the investors and the companies are building forward positions in the dollar in order to have gains in the currency.
Although, Indian exports become more competitive in the global market because of the weaker rupee which will boost the export earning for industries like IT. A weaker rupee also means that the remittances of Indians living in abroad can go up further in India, benefiting the economy of regions reliant on remittances.