Global markets saw sharp swings on Wednesday as rising tensions in West Asia collided with expectations of further tightening by the US Federal Reserve.
Crude oil prices erased most of their early gains, while the Indian rupee recovered from intraday lows after intervention by the Reserve Bank of India (RBI).
Oil gives up gains
Oil prices initially rose after military tensions escalated in the Persian Gulf.
However, concerns over higher US interest rates later capped the rally.
By the close:
- WTI crude fell 0.26% to $87.97 per barrel.
- Brent crude slipped 0.11% to $91.35 per barrel.
Earlier in the session, prices had moved higher after reports that Iran launched strikes on Bahrain, Jordan and Kuwait.
The attacks followed US military action after the reported downing of an American helicopter over international waters.
US inventory data supports prices
Weekly data from the American Petroleum Institute (API) showed US crude inventories fell by 9.12 million barrels last week.
The decline pushed stockpiles to their lowest level in four months.
Despite tighter supplies, traders shifted their attention to the upcoming US inflation data and the possibility of further rate hikes.
Markets are increasingly expecting tighter monetary policy to weigh on global economic activity and energy demand.
Rupee recovers after RBI action
The Indian rupee came under pressure during the day and touched an intraday low of around 95.56 per US dollar.
The currency later recovered and closed near 95.11, gaining around 0.33%.
According to market participants, pressure on the rupee came from:
- Offshore non-deliverable forward (NDF) positions.
- Continued foreign portfolio investor outflows.
RBI intervenes
Traders said the Reserve Bank of India stepped into the market to limit volatility.
According to market participants, the central bank:
- Sold dollars in the spot market.
- Conducted longer-term dollar-rupee swap operations.
The intervention helped prevent a further slide toward the 96-per-dollar mark.
Inflation and oil remain key risks
Although the rupee recovered, several challenges remain.
India’s inflation rate has risen to 3.48%, while crude oil prices continue to trade above $85 per barrel.
Higher oil prices could increase pressure on India’s current account deficit.
The RBI has kept the policy rate unchanged at 5.25%.
Factors that could influence the rupee
Market participants are watching:
- US economic data.
- Federal Reserve policy signals.
- Foreign capital flows.
- Developments in West Asia.
- Oil price movements.
Outlook
The RBI’s intervention helped stabilise the rupee on Wednesday, but the direction of the currency will likely depend on global developments.
Geopolitical risks and expectations surrounding US interest rates are expected to remain the key drivers for both oil prices and the rupee in the near term.
TL;DR
The rupee recovered from intraday lows of 95.56 after RBI intervention, while crude oil prices gave up early gains as fears of tighter US monetary policy outweighed geopolitical concerns in West Asia.
AI Summary
- The rupee touched 95.56 before recovering to around 95.11.
- RBI reportedly intervened through dollar sales and swap operations.
- WTI crude closed at $87.97 per barrel.
- Brent crude settled at $91.35 per barrel.
- Markets are focused on US inflation data and Federal Reserve policy.
