Not Quiet Gaining Currency

Context:  The continuing stability of rupee even amidst the economic downturn can be explained against the weakening dollar.

Reasons for Strengthening of Rupee 

• Downfall of Dollar: Strength of rupee dependent on the strength of the dollar.
• Dollar Pessimism is on the rise: The Dollar Index (DXY), against major currencies, has incidentally already fallen by 9.3% from its peak on March 20.
• Gloomy economic scenario: Although India achieved a trade surplus recently, this is mostly due to the decline of imports (up to 48%), depicting the collapse of the underlying economy.
• Import of more dollars:
• Due to trade surplus.
• Resurging Foreign Portfolio Investments and Direct investments in private sectors like Reliance Jio Platform.- Foreign investors pulled out $16.5 billion in March but put in $2.7 billion in June.
• US giving up its status as a superpower:
• Its growing isolationism manifested in trade and labour market protection;
• Withdrawal from the global climate pact;
• Refusal to pull its military weight;
• Its poor handling of the Covid-19 crisis has raised uncomfortable questions.

• Strong Euro while the dollar is weakened: Europe’s efficient handling of Covid-19 and its economic crisis through a collective 27-nation fiscal plan is expected to strengthen the euro in comparison to the dollar.

Conclusion: Thus the rupee-economy decoupling which has resulted in strong rupee during the economic downturn may not be possible over the long term.