By Siddhi Nayak
MUMBAI (Reuters) – The Indian rupee ended weaker in a volatile session on Friday as investors stayed cautious amid fears of an escalation in tensions with Pakistan after a militant attack in Kashmir earlier this week.
The rupee ended 0.2% lower against the U.S. dollar at 85.45 compared with its previous close of 85.26. It moved between 85.09 and 85.6550 on Friday.
The local unit dropped about 0.1% week-on-week.
The rupee’s “inability” to rise above its key psychological level of 85 and month-end dollar payments “exacerbated” its downward move, a trader with a private bank said.
Indian stock markets dropped on Friday, significantly underperforming other Asian equity indexes on growing fears of further tensions with neighbouring Pakistan.
The nuclear-armed nations have unleashed a raft of measures against each other, with India keeping a critical river water-sharing treaty in abeyance and Pakistan closing its airspace to Indian airlines, among other steps.
There have been calls for and fears that India could conduct a military strike in Pakistani territory as it did in 2019.
The Indian army chief is expected to review security arrangements in Kashmir on Friday, a day after Prime Minister Narendra Modi said that New Delhi will pursue Kashmir attackers to “the ends of the earth”.
“The forex market is perplexed with the increased geopolitical tensions between India and Pakistan, which is why there was a bout of dollar buying,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.
USD/INR forward premiums and implied volatility rose on concerns over brewing tensions between the countries.
(Reporting by Siddhi Nayak; Editing by Sonia Cheema)
