Rupee snaps six-session winning streak as stronger dollar pinches

The Indian rupee snapped a six-day long-term gain on Monday, as the dollar hit a one-year high against a basket of peers, even as a retreat in oil prices calmed concerns over spillovers from the US-Iran war.

The currency ended the trading session at 94.6775 per dollar, down 0.4% from its close on Friday. The rupee had gained about 1% in the previous six sessions.

Asian currencies fell between 0.3% and 0.7%. A hawkish turn by the US Federal Reserve last week has prompted traders to add to wagers on a rate hike later this year, with rates clinging to near the 101 handle – its highest levels – from May 2025.

Futures suggested a tightening of around 38 basis points by the end of the year. The yield on 2-year notes rose 4 basis points to 4.23%, the most since early 2025.

“Markets may try to use upcoming data or Fedspeak as catalysts to price in 50bp of Fed tightening in 2026, but until there is new growth in the Middle East, lower oil prices should benefit the USD,” analysts at ING said in a note.

Brent crude oil prices fell about 2% after US and Iranian officials made “encouraging progress” in the first round of talks in Switzerland.

While the rupee’s persistent bearish bias has eased in light of retreating oil prices and policy measures to tighten dollar flows, traders believe the prospect of higher borrowing costs in the US could dampen the improved sentiment.

The dollar-rupee far forward premium, which reflects the cost of hedging against rupee depreciation, rose 10 bps on Monday with the 1-year forward implied yield at 2.95%.

Bankers also expect that hedging of interest liabilities on foreign currency deposits, which have been raised under the above measures to pull dollar inflows, is likely to accelerate the forward curve.