Rupee Hits All-Time Low Against US Dollar at 85.10. What are the Reasons for the Decline?

The Indian rupee today slipped to a record low of 85.10 against the US dollar on the back of strong US economic data. The domestic currency further slipped against Thursday’s low of 85.0850.

As per the reports, state-run banks are selling dollars, on behalf of the Reserve Bank of India (RBI), averting further depreciation.

What’s the reason behind the rupee's decline?

India’s economic output slumped to a two-year low of 5.4% in Q2. Moreover, the widening trade deficit has raised concerns among investors about the economy. The US Federal Reserve’s stance on fewer rate cuts in 2025 has dampened the prospects in emerging currencies.

Kunal Sodhani, Vice President at Shinhan Bank India told Reuters, “Higher trade deficit along with slow growth figures puts the rupee on test with outflows from domestic equity markets. For USD/INR, positionally 84.70 now acts as a good base while the door remains open for 85.50 levels.”

During Thursday’s trading session, foreign investors pulled out nearly $500 million from the Indian equities market, further contributing towards the rupee’s depreciation.

Investors are awaiting the release of crucial data points, including personal consumption expenditure (PCE) inflation data, the Federal Reserve’s preferred inflation measure.