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The recent drop in crude oil prices has led to a significant appreciation of the Indian rupee, which strengthened by 61 paise in a single day. In the international market, crude oil prices fell by over 10%, positively impacting the rupee's value against the dollar. On Wednesday, the rupee closed at 94.57 against the US dollar, reflecting this upward trend. This shift was influenced by US President Donald Trump's indication of a potential agreement with Iran, causing Brent crude prices to decline to around $100 per barrel.

Rupee's Remarkable Surge

In the interbank foreign exchange market, the rupee opened at 95 against the dollar but experienced a dip, reaching a low of 95.18 during the day. Ultimately, it closed at 94.57, marking a gain of 61 paise from the previous close of 95.18. Earlier, tensions in the Gulf region and attacks on UAE infrastructure had led investors to shy away from riskier assets, raising concerns about supply chains. However, following the Reserve Bank of India's (RBI) potential intervention, the rupee showed signs of recovery after hitting a low of 95.44.

Reasons Behind the Rupee's Strength

According to Amit Pabari, MD of CR Forex Advisors, the RBI is exploring ways to support the currency without directly using its forex reserves. One of the discussed strategies involves encouraging government banks to raise funds through foreign currency bonds, which could help inject new dollars into the system. Trump's suspension of the 'Project Freedom,' aimed at securing ships in the Strait of Hormuz, has also contributed to this positive sentiment. He claimed progress in negotiations towards ending hostilities with Iran, as mentioned in a post on 'Truth Social.'

Understanding Trump's Project Freedom

'Project Freedom' was initiated to safely escort ships stranded due to the closure of the Strait of Hormuz. Announced by Trump on Sunday, the operation was implemented the following day by the US Central Command. Pabari noted that while there is a slight easing in the global atmosphere, complete relief is not yet felt. Trump's announcement to temporarily halt 'Project Freedom' has reduced some of the extreme uncertainty in the markets.

Decline in Dollar and Crude Oil Prices

The dollar index, which measures the strength of the dollar against a basket of six currencies, was trading at 97.79, reflecting a decline of 0.66 percent.

Global oil benchmark Brent crude was trading at $100.81 per barrel, down 8.25 percent in futures trading.

On the domestic stock market front, the Sensex surged by 940.73 points to close at 77,958.52, while the Nifty rose by 298.15 points to reach 24,330.95.

According to exchange data, foreign institutional investors sold shares worth ₹3,621.58 crore on Tuesday.

A monthly survey released on Wednesday indicated that India's service sector growth reached a five-month high of 58.8 in April, driven by an increase in new orders and production.

The survey highlighted that amid the West Asia crisis, companies shifted from international suppliers to domestic ones.

The seasonally adjusted HSBC India Services PMI Business Activity Index rose from 57.5 in March to 58.8 in April, indicating the strongest expansion rate since last November.