Indian Rupee and Equities Slide Amid US Rate Hikes

The Indian rupee fell to a one-week low of 95.9550 per dollar on Thursday, snapping a four-day winning streak. The currency's decline was driven by a strengthening US dollar index and rising Brent crude oil prices, which climbed above $100 per barrel. This volatility followed threats from US President Donald Trump to "annihilate" Iran if a diplomatic deal is not reached, prompting Iranian President Masoud Pezeshkian to vow he will "never surrender."

Simultaneously, Indian equity markets experienced their sharpest single-day drop since early July. The Sensex fell over 600 points and the Nifty slipped below 23,300, pressured by a surge in US 10-year Treasury yields, which crossed 5.10%—the highest level since 2007. These yields rose following strong US business activity data and a 25 basis point interest rate hike by the Federal Reserve. New York Federal Reserve President John Williams stated it is reasonable to expect another rate increase before the end of the year to mitigate inflation risks.

In other diplomatic developments, President Trump welcomed Chinese President Xi Jinping to Washington for a state visit. Ahead of the summit, US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng agreed to extend the bilateral trade truce until January 10, 2027. In India, state-run banks conducted dollar sales to prevent the rupee from crossing the 96 per dollar threshold, while investors began pricing in potential domestic rate hikes due to retail inflation and a weak monsoon.