In recent days, the rupee has come under increased pressure, but the Indian currency is no exception. US President Donald Trump’s executive orders imposing additional tariffs on Canada, Mexico and China have roiled markets. On Monday, investor sentiment soured in most markets across the world and major currencies were strained. The Sensex ended the day down 0.4 per cent while the rupee fell to an all-time low of 87.29 against the dollar during the day, closing at 87.19. On Tuesday, some of the lost ground was regained. The Sensex rose 1.8 per cent, while the rupee ended the day around 87.07. Investors are, however, bracing themselves for a period of uncertainty.
It is difficult to see how this trade war will play out. Trump has now decided to delay the imposition of tariffs on both Mexico and Canada for one month after speaking with the leaders of the two countries and extracting concessions. However, on Tuesday, China announced tariffs on select imports from the US beginning February 10. Trump has now indicated that the EU could be the next target. During this period of unpredictability, preference for a safe haven, the dollar, will only increase. Uncertainty over Trump’s policies may also force the US Federal Reserve to keep rates unchanged in the near term. This will only strengthen the dollar. On Monday, the dollar index — which measures the value of the greenback against euro, yen, pound, Swiss franc, Swedish krona and the Canadian dollar — rose to 109.84, up 1.24 per cent, even as on Tuesday, it was hovering around 108.5. In January, foreign investors withdrew more than $9 billion from Indian markets. In fact, February 3 was the 23rd consecutive day of FII outflows — the longest stretch at least in the past decade, as per a report by Axis Capital.
