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Rupee depreciated sharply by 84 paise to close at 85.61 (provisional) against the U.S. dollar on Thursday, weighed down by heightened geopolitical tensions between India and Pakistan.

Forex traders said investors resorted to risk aversion in the domestic markets after the Pakistani military attempted a number of military targets in northern and western India using drones and missiles that were neutralised by Indian defence system.

Besides, heightened geopolitical risks, positive U.S. dollar index and a rise in crude oil prices also weighed on the rupee.

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At the interbank foreign exchange, the domestic unit opened at 84.61 and moved between an intra-day high of 84.52 and a low of 85.77 against the greenback. The unit ended the session sharply lower at 85.61 (provisional), registering a fall of 84 paise over its previous closing level.

On Wednesday, the rupee depreciated 42 paise to close at 84.77 against the U.S. dollar, following India’s military strikes against terrorist camps in Pakistan and Pakistan-Occupied Kashmir.

Meanwhile, a top American military commander has said that the U.S. is “watching the situation very closely” after Indian military strikes on terror targets in PoK and Pakistan’s Punjab province.

“We expect the rupee to trade with a negative bias on the strong dollar and ongoing geopolitical tensions between India and Pakistan. Any further escalation may further pressurise the rupee.

“However, FII inflows may support the rupee at lower levels. Traders may take cues from weekly unemployment claims data from the US. USD-INR spot price is expected to trade in a range of 85.20 to 86,” said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan.

Meanwhile, Defence Minister Rajnath Singh on Thursday told an all-party meeting that at least 100 terrorists were killed when India struck terror sites in Pakistan and Pakistan-occupied Kashmir under the still ongoing Operation Sindoor.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.46% at 100.07.

Brent crude, the global oil benchmark, rose 1.05% to $61.76 per barrel in futures trade.

The domestic equity market faced heavy volatility in the fag end of trading on Thursday after reports surfaced that the Indian Armed forces foiled attempts by the Pakistani military to engage a number of military targets in northern and western India.

The 30-share BSE Sensex plunged 411.97 points, or 0.51%, to close at 80,334.81, while the Nifty slumped 140.60 points, or 0.58%, to settle at 24,273.80.

Foreign institutional investors (FIIs) bought equities worth ₹2,585.86 crore on a net basis on Wednesday, according to exchange data.

Meanwhile, the FOMC (Federal Open Market Committee) left interest rates unchanged at 4.25% – 4.50% band as widely expected, but Federal Reserve chief Jerome Powell said it was not very clear if the economy would continue its steady pace of growth or wilt under the mounting pressure of trade uncertainty and a possible spike in inflation.