Dollar Surge and Rising Oil Prices Intensify Pressure on Global Currencies and Indian Rupee: Emkay Wealth Management

According to Emkay Wealth Management, global currency markets have remained highly volatile over the past two months following the escalation of geopolitical tensions in the Middle East, which has significantly strengthened the US Dollar and increased pressure across major global currencies.

The US Dollar Index (DXY) touched a high of 100.27 over the past month, compared to a low of 97.80, reflecting a gain of nearly 2% amid elevated global uncertainty. Currently the index is at 99.50. Emkay Wealth Management noted that the Dollar continues to benefit from strong safe-haven demand, rising oil-linked Dollar requirements and expectations that the US Federal Reserve may maintain a cautious stance on interest rates.

Brent crude prices rising towards US$ 120 per barrel have further supported the Dollar, as global crude oil transactions continue to be predominantly denominated in US Dollars. With negotiations between the US and Iran going on, there has been some respite with oil prices declining to US$ 97-US$ 100 range.  The firm also highlighted that investors who had previously reduced exposure to the Dollar have returned to US treasury-linked investments amid the uncertain macro environment.

Stronger-than-expected US economic data and elevated US Treasury yields continue to support the dollar against major global currencies. Foreign Institutional Investors remain cautious on India market, leading to intermittent capital outflows from Indian equities and debt markets. Higher energy prices could widen India’s current account deficit and increase imported inflation risks in the coming quarters. Export-oriented sectors may benefit marginally from a weaker rupee, while import-heavy industries could face rising input cost pressures.

Mr Vivek Shukla, Regional head, Emkay Wealth Management said, “Persistent expectations of further rate hikes by the U.S. Federal Reserve, coupled with a delay in anticipated rate cuts, have widened interest rate differentials in favor of dollar-denominated assets. The Euro and Yen remain under pressure due to divergent monetary policies (ECB caution, BOJ ultra-loose stance), indirectly boosting the dollar index. While the INR is under pressure, it may still fare relatively better than other EM currencies due to India’s robust services exports and remittance inflows, though 95.60 is a significant technical and psychological resistance.”

Mr Shukla also noted, “To counter the combined pressure of geopolitical uncertainty and rising oil prices, the Reserve Bank of India has launched its largest currency defense operation in over a decade. The RBI spent a staggering 53.13 billion dollar in the spot market during FY26 to stabilize the rupee. Additionally, the central bank executed a record volume of sell-buy dollar swaps exceeding 103 billion dollars. Despite this effort, the rupee depreciated nearly 9.5% against the Dollar during the fiscal year. The pressure on rupee is so intense that any further depreciation of Rupee could negate the financial gains oil marketing companies receive from domestic fuel price hikes made recently. Recently, it started trading stronger at 95.32 against the US Dollar because of hopes for a ceasefire between the US and Iran. In the short term, we expect the Rupee to move between 94.50 and 97.60 per dollar and if the conflict gets even worse, the Rupee might touch the symbolic 100 level.”

The firm believes that the market could test the 97.60 level in the near term if global uncertainty and elevated crude prices persist. India’s structural dependence on imported energy is also expected to keep demand for the US Dollar elevated in the current environment.

Yen Sees Sharp Volatility Following BOJ Intervention

According to Emkay Wealth Management, the Dollar’s appreciation was most visible against the Japanese Yen. The Dollar-Yen exchange rate briefly touched 160, prompting the Bank of Japan to intervene in currency markets for the first time in nearly two years. Following the intervention, the exchange rate corrected sharply toward the 155 level, and subsequently moved back to 159 level.

The firm noted that concerns around rising fuel costs and slowing economic momentum continue to weigh on Japan’s growth outlook. However, relatively stronger crude inventory positions may provide some near-term stability for the Japanese economy.

Indian Rupee Remains Under Pressure

The Indian Rupee has continued to weaken despite intervention measures undertaken by the Reserve Bank of India and recent quantitative steps aimed at reducing speculative positioning in currency markets.

Emkay Wealth Management stated that elevated crude prices are expected to increase India’s import outlay by an estimated US$ 10–15 billion, thereby adding pressure on the current account position. At the same time, subdued foreign institutional inflows into Indian equities have limited support for the domestic currency.

Outlook

According to Emkay Wealth Management, currency markets are likely to remain sensitive to geopolitical developments, crude oil price movements and global central bank commentary over the coming weeks. Any signs of easing geopolitical tensions or moderation in oil prices could help stabilise currency markets, while prolonged uncertainty may continue to support the Dollar and sustain volatility across global FX markets.

Above views are of the author and not of the website kindly read disclaimer