Rupee volatility spikes on fears of India-Pakistan tensions

The Indian rupee experienced sharp swings on Tuesday, reportedly driven by rising concerns over potential diplomatic escalations between New Delhi and Islamabad following a terrorist attack in Kashmir’s Pahalgam last week. 

The heightened geopolitical uncertainty left currency traders on edge, prompting cautious positioning and rapid reactions to news developments.

After opening weaker, the rupee briefly rallied to 84.95 against the US dollar – its strongest level this year – before tumbling sharply to around 85.40.

As per market participants, the sudden fall was linked to stop-loss triggers and fears stemming from headline risks. The rupee was last quoted at 85.21, marking a 0.2% decline on the day.

Traders described the rupee as “too volatile” and the market atmosphere as “highly sensitive” to any updates concerning India-Pakistan relations. Many reportedly opted to keep positions small and nimble to manage the unpredictable environment.

The rupee’s rollercoaster session followed remarks late on Monday by Pakistan’s defence minister, who claimed that a military action by India was imminent. This statement, according to bankers, fuelled the nervous sentiment among investors and was seen as a key trigger for the rupee’s erratic movements.