************Dollar flying or Rupee falling (Explained) ######
There are around 200 countries in the world and each has their respective currency and all currencies maintain an exchange rate with the currency of other countries
Exchange rate of a currency depends upon the supply and demand of that currency
Now the question: the dollar is strengthening or the rupee is weakening
Check the USD-INR performance of the last 1 year
Oct 2021 : 1 USD = Rs 75
Oct 2022 :1 USD = Rs 82
It's due to the good performance of USD or due to the bad performance of INR ?
We can't say on the basis of that curve
To check this, we have to find -
1 How Rupee is performing against other major currencies of the world
2. How other currencies are performing against USD
If the rupee is falling against other currencies also then we can say rupee is falling
If other currencies also falling against USD then we can say it is dollar that is strengthening
British Pound, Euro and Japanese Yen are the other major currencies of the world.
Lets check Rupee vs Pound
Oct 2021 - 1 GBP = Rs 104
Oct 2022 - 1 GBP = Rs 92
So in 1 Last Year INR strengthened against GBP
Lets check Rs vs Euro
Oct 2021: 1 Euro = Rs 88
Oct 2022: 1 Euro = Rs 82
So Rs strengthened against Euro also
Lets check Rs vs Yen
Oct 2021 : 1 Yen = 0.65 Rs
Oct 2022 : 1 Yen = 0.55 Rs
So Rs strengthened against Yen also
In last 1 year Rs weakened against dollar but strengthened against all major currencies. It gives indication that Rs is not falling
Lets check performance of these currencies against dollar
For that we will check dollar index
dollar index measures relative performance of dollar against 6 major currencies of world including GBP, Euro & Yen
Oct 2021: USD value agst 6 major currency = 93
Oct 2021: USD value agst 6 major currency = 112
So it proves that rupee is not falling, its actually dollar is strengthening. Rupee is fighting bravely against dollar and performing very well compared to other currencies and India really deserves appreciation for it.
Reason for this:
Petrol import covers 30-40% of our total import
In last 1 year, due to Russia Ukraine war, price of oil and gas is sky rocketing.
India's import bill is getting higher
Oil is traded in USD
Import high, export less means
demand of USD high, demand of INR less
So despite of such negative condition, INR fighting bravely n performing well against other currencies.
Now let me tell the reason why Dollar is sky rocketing.
Reason is: US federal reserve rate that was 0 in Feb 2022 and now its 3.5%
Now understand this-
American banks need to maintain a fixed amount with US fed bank and for that on daily basis they keep taking loan from another bank n interest rate on that loan is called Fed interest rate.
When fed increases that interest rate then all investors of the world, take out money from their current investment n invest into US fed bank coz investment in Fed bank is considered safest investment in difficult situation.
U can invest in fed bank only in USD so u need USD for it so demand of USD increase & prices of USD goes high and exactly this happened in last 6 months
Why fed increased interest rate ?
To control the inflation
As interest goes high
Interest rate of saving account, FD also increased, credit card, home loan interest goes high, people stop spending and start investing, circulation of money goes down in market, demand goes down & price comes down
Basic economics!
So to control inflation US increased fed rates and due to that USD demand increased n USD strengthened against all currencies
So final conclusion its USD is strengthening, Rupee is not weakening but I will tell u one case when actually Rupee weakened and that happened during 2008-14
Check the Fed rates of last few years
Fed rates were 0 during 2010-14
Now check the dollar index of last few years
2001-03 and 2022 was the time time when dollar was very strong
2008-14 was the time when dollar was weak against all those 6 currencies
Now check performance of Rs and USD during 2008 -2014
2008 : 1 USD = Rs 40
2014 : 1 USD = Rs 63