Rupee Plunges to Historic Low Beyond 86 per Dollar as Strong US Jobs Data Dampens Rate Cut Hopes

The Indian rupee breached the psychologically crucial level of 86 against the US dollar for the first time on Monday, January 13, 2025, marking its steepest single-day fall in nearly two years. The domestic currency plummeted to an all-time low of 86.40 per dollar, driven by a combination of robust US employment data, rising crude oil prices, and sustained foreign fund outflows.

The rupee opened at a record low of 86.12 and continued its downward trajectory throughout early trading hours, with the Reserve Bank of India (RBI) stepping in to manage market volatility. The sharp depreciation came after better-than-expected US jobs data led to reduced expectations of Federal Reserve rate cuts in 2025.

The US labor market showed remarkable strength with employers adding 256,000 jobs in December, significantly exceeding economists’ expectations of 160,000 jobs. The unemployment rate unexpectedly dipped to 4.1%, reinforcing the Federal Reserve’s cautious stance on monetary policy easing.

This strong economic data has caused a ripple effect across global markets, pushing US 10-year Treasury yields to 4.76% and strengthening the dollar index to a two-year high of 109.72. The robust dollar performance has triggered substantial capital outflows from emerging markets, with India witnessing approximately $4.2 billion in foreign investment exits in January 2025 alone.

Adding to the rupee’s woes, Brent crude oil prices surged to $81.23 per barrel, putting additional pressure on India’s current account deficit. As a net oil importer, India’s currency typically faces downward pressure when crude prices rise. Foreign institutional investors (FIIs) continued their selling spree, offloading ₹2,254.68 crore worth of Indian equities on January 10.

The domestic equity markets mirrored the currency’s weakness, with the BSE Sensex tumbling 677.22 points to 76,701.69 and the NSE Nifty declining by 212.90 points to 23,218.60. The market sentiment was further dampened by a significant drop in India’s forex reserves, which fell by $5.693 billion to $634.585 billion in the week ending January 3.

Currency traders and analysts suggest that the RBI has been allowing gradual depreciation of the rupee in recent days to accommodate growing dollar demand amid dwindling supply. “The Rupee has hit 86 well before January and is now headed to 86.50 in a slow and steady way. RBI will allow the weakness as demand keeps rising and supplies dwindle,” noted Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP.

The outlook for the rupee remains challenging in the near term, with analysts expecting the currency to trade within the 85.80–86.50 range. Market participants are closely monitoring upcoming policy announcements and potential developments following US President Donald Trump’s inauguration on January 20.

The currency’s trajectory will largely depend on global factors, including the Federal Reserve’s monetary policy decisions, oil price movements, and geopolitical developments. The market is currently pricing in just one 25-basis-point cut by the US Fed in 2025, significantly lower than previous expectations.