The Indian Rupee and the US Dollar

Last September, when the rupee was at 40.69/$ and rising, exporters rushed to sell their dollars and buy rupees. Its ironic that just a year later, the Indian currency doesn’t find many takers in the foreign exchange market. As the rupee dropped to 44.62/$ on Monday, pressured by dollar demand from oil companies and weak inflows into the stock market, exporters were also nowhere to be seen. After gaining 10.3% to end 2007 around 38.42/$, the rupee has struggled in 2008. So far this calendar year, the currency has dropped 16% and is threatening to end the year at 45/$ or below, a level last seen in 2006. Forex dealers say the rupee is likely to weaken to 45/$ and beyond as the dollar continues to gains strength overseas and inflows are not expected to recover soon.

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