Indian Rupee Weakens Amid Iranian Missile Attacks and Oil Spikes

The Indian rupee opened weaker at 95.45 against the US dollar on June 3, reversing a brief recovery period. The currency had previously appreciated 0.4 percent to close at 95.27 on June 2, bolstered by a slump in Brent crude oil prices and a 4.9 percent expansion in April industrial production. The Government of India also contributed to this stability by containing the FY26 fiscal deficit at 4.4 percent of GDP.

This recovery was erased by renewed hostilities in the Middle East. The Government of Iran launched missile attacks targeting Bahrain, Kuwait, and other regional locations, though the missiles were either intercepted or failed. These attacks coincided with stalled peace negotiations between Washington and Tehran, contradicting earlier optimism from Donald Trump regarding a truce and the reopening of the Strait of Hormuz. In response to the instability, Brent crude prices climbed approximately 1 percent to nearly $97 per barrel.

Domestically, the rupee faced further pressure from significant capital flight. Foreign portfolio investors sold over $800 million in Indian equities on June 2 and nearly $600 million on June 3, adding to previous weekly outflows of $2.3 billion. The Reserve Bank of India has performed regular market interventions to cushion the currency's fall as the market awaits a monetary policy committee review on June 5.