Rupee's Remarkable Recovery

In a surprising turn of events, the rupee made a significant recovery on Wednesday, bouncing back from its all-time low to record its best single-day gain in more than seven months. Closing at Rs 86.36 against the US dollar, it gained 27 paise from Rs 86.63, marking its strongest percentage rise since June 3, 2024.

Factors Behind the Surge

The recovery was bolstered by a decrease in the dollar index, which initially fell to 109 before further weakening to 108.8. Additionally, the US December CPI, which rose 0.4% exceeding expectations, played a role in this movement. Foreign banks began selling dollars following reports that the RBI's stance on the rupee remained unchanged.

Market Reactions and Future Outlook

The domestic currency found some relief, supported by positive signals from equity markets and a reduction in crude oil prices amid news of a potential resolution to the Middle East conflict. The Sensex rose by 224 points to close at 76,724, while the Nifty gained 37 points, ending at 23,213. Dealers noted that the rupee traded within a range of Rs 86.25-86.55 throughout the day. The retreat of the dollar index from its record high and softer US 10-year treasury yields contributed to the rupee's momentum. However, continuous FII outflows limited significant gains. In efforts to ease liquidity, the RBI announced it would conduct daily variable repo rate auctions to lend to banks.