This week marked a striking moment for the Indian economy as the rupee displayed notable weakness in the foreign exchange marketOn Monday, it weakened by 9 paise, ultimately closing at an historic low of 84.89 against the US dollarThis downward trend is igniting widespread concern among market participantsAnalysts suggest that the rupee's steep decline is primarily attributed to growing economic softness within India, coupled with rising yields on US bonds.

In recent months, the indicators of economic growth in India have appeared increasingly lacklusterReports from Bloomberg indicate that the Indian government has revised its growth forecast for the fiscal year down to a modest 6.4%, the slowest rate experienced in four yearsParticularly troubling is the consumer market, a critical driver of economic expansion, which is facing severe challengesData from December showed a drop in auto sales, and numerous consumer goods companies are reporting tough market conditions

Sales growth in the fast-moving consumer goods sector plummeted from 11% the previous year to a meager 2.8%, highlighting a significant reduction in consumer willingness and ability to spendConsequently, this downturn adversely impacts the profitability of domestic businesses and hampers overall economic dynamism.

Simultaneously, the sharp rise in US bond yields adds an additional layer of downward pressure on the Indian rupeeA series of recently released optimistic economic data from the US showcases a robust labor marketJob openings surged from an anticipated 7.7 million to a staggering 8.1 million, suggesting the US labor market's vibrancy and the underlying strength of economic developmentFurthermore, the services sector is also witnessing positive growth trends, solidifying the foundations for a resilient US economyA significant factor contributing to the increase in the 10-year US Treasury yield—now at 4.69%, its highest level since April of last year—is the issuance of $39 billion in 10-year bonds

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This influx of capital is acting like a magnet, drawing global investment toward the US and placing emerging market currencies like the Indian rupee under considerable strain.

Despite these adverse circumstances, a weakening dollar has somewhat cushioned the rupee's slideIn interbank forex trading, the rupee opened at 84.83, rebounding from last week's historic low, gaining 8.80 paise against the dollarThe US dollar index fell slightly by 0.14% to 106.85, providing the rupee with a bit of relief amidst a relatively soft dollar.

On the macroeconomic front, not all news is bleak for IndiaIn November, the wholesale inflation rate based on prices dropped to a three-month low of 1.89%. Lower prices present a silver lining for businesses and consumers within IndiaReduced inflation rates suggest potential decreases in production costs for companies and a boosted purchasing power for consumers, which may alleviate some pressure on economic growth.

However, despite a 0.78% drop in global benchmark Brent crude oil futures, the threat posed by rising crude oil prices remains

Anuj Choudhary, a research analyst at Mirae Asset Sharekhan, highlights that escalating oil prices may place further strain on the rupeeIndia's heavy reliance on oil imports means that increased prices will elevate the country's import costs, thereby widening the trade deficit and contributing further to the rupee's depreciation.

In the context of the Indian stock market, the 30-share benchmark index, Sensex, closed down by 384.55 points, marking a decline of 0.47%, and resting at 81,748.57 pointsConcurrently, Nifty dropped by 100.05 points, or 0.4%, closing at 24,668.25 pointsThis downturn in the stock market mirrors investors' fears regarding the economic prospects of India and could potentially lead to capital outflows, exacerbating the downward pressure on the rupee's exchange rate.

Nonetheless, Foreign Institutional Investors (FIIs) inflow and the cooling inflation could provide some support for the rupee at lower levels