The US dollar hovered near an 18-month high on Monday, led by safe-haven demand as escalating attacks in the Middle East over the weekend kept investors on edge ahead of key US inflation data due later this week.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.37% to 102.58, its highest level since April 2025.
Minutes from the Fed’s latest policy meeting have also indicated the possibility of another interest rate hike in December, although market expectations of an October rate increase have moderated. The prospect of interest rates remaining elevated for longer continues to underpin the dollar’s strength.
Meanwhile, crude oil prices have maintained an upward bias despite President Trump’s announcement of an energy ceasefire between Russia and Ukraine and an agreement with Russia concerning substantial diesel supplies. Persistent geopolitical tensions in the Gulf region, particularly following recent attacks on Saudi Arabia, continue to sustain a geopolitical risk premium in crude oil prices, and supporting the dollar as crude oil is world over traded in dollars.
According to market experts, for Indian equity markets, including the Sensex and Nifty 50, a strong dollar could pose a fresh challenge by encouraging foreign investors to shift money towards US assets, putting pressure on foreign portfolio investor (FPI) flows and weakening the rupee.
What does rising US Dollar could affect Indian stock market?
The dollar’s strength reflects a combination of safe-haven demand, expectations of higher US interest rates and elevated geopolitical risks. When global uncertainty rises, investors often prefer dollar-denominated assets, particularly when US Treasury yields offer relatively attractive returns. This can draw capital away from emerging markets such as India, increasing selling pressure on domestic equities.
Anuj Gupta, SEBI-registered research analyst, said the dollar is trading around 102.57, close to its 18-month high, signalling a clear preference for the US dollar amid weakness in Indian equities. He noted that sustained foreign portfolio outflows indicate cautious investor sentiment towards the Indian market, while higher US interest rates and Treasury yields are making dollar-denominated assets more attractive.
Seema Srivastava, senior research analyst at SMC Global Securities, said a sharply appreciating dollar against the Indian rupee can create significant pressure on benchmark indices such as the Sensex and Nifty. Foreign institutional investors may withdraw funds from emerging markets to invest in safer, higher-yielding US assets, triggering broad-based selling in Indian equities.
What should investors watch next?
On Sensex, Nifty 50 outlook, Srivastava added that both headlines likely to experience short-term volatility and downward pressure from foreign institutional outflows, sector-specific dynamics determine individual stock performance, meanwhile, exporters enjoy margin expansions, whereas import-reliant and domestic-focused sectors absorb the brunt of rising currency and energy costs.
Meanwhile, on the technical outlook, Sachdeva added that a decisive breakdown below 101.50, particularly if accompanied by easing US bond yields and moderation in crude oil prices, could provide much-needed relief to emerging-market currencies, revive foreign investor appetite and create a more favourable environment for a meaningful recovery in Indian markets.
“ Until then, market rallies could remain vulnerable to selling pressure, with sustained FII inflows emerging as a crucial prerequisite for a durable turnaround,” she said.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
