Why the Indian Rupee Just Crashed to an All-Time Low

Alexander

Central Bank

Remarks of Officials

Stocks

Bond

Traders' Opinions

Political

Economic

Forex

Summary:

India's rupee plunged to a record low amidst a global bond sell-off and sustained capital outflows, with the RBI refraining from intervention.

The Indian rupee tumbled to a record low on Wednesday, marking its most significant single-day drop in two months amid a global bond sell-off and rising investor anxiety over capital outflows.

The currency fell for the sixth consecutive session, hitting an unprecedented 91.7425 against the U.S. dollar. It ultimately closed at 91.6950, a 0.8% decline from the previous day's 90.9750.

Market traders noted that the fall was amplified by the Reserve Bank of India’s decision to refrain from intervening with dollar sales. As the worst-performing currency in Asia for the day, the rupee has already weakened by 2% this month, extending the approximately 5% decline it registered in 2025.

The USD/INR exchange rate trended consistently upward from 2025 to 2026, signaling a persistent weakening of the Indian rupee.

Persistent Outflows Rattle Markets

Many of the headwinds that pressured the rupee in 2025 have carried over into the new year. A key factor is the continued exit of foreign capital from Indian equities.

Foreign investors have already pulled around $3 billion from Indian shares in January, following record outflows of nearly $19 billion in 2025. This trend has put pressure on the domestic stock market, which fell 0.3% on Wednesday after its largest drop in over eight months the day before.

"Flows mainly drive the USD/INR pair, thus weakness may continue to persist with interim legs of intervention expected from RBI in case of excess volatility," said Kunal Sodhani, head of treasury at Shinhan Bank India.

Foreign investment data shows significant equity outflows from India in 2025, a trend that has continued into the current year.

Economic and Geopolitical Pressures

Analysts point out that while India’s current-account deficit is manageable, a lack of sufficient capital inflows leaves the currency vulnerable. This situation is worsened by importers, who are more inclined to hedge their dollar exposure than exporters are, anticipating further rupee depreciation.

According to India Forex Advisors, the currency will remain sensitive to shifts in corporate demand and portfolio flows. An increase in global risk aversion, fueled by factors like a global bond rout and U.S. threats regarding Greenland, would likely accelerate outflows and intensify the downward pressure.

Adding to the currency's challenges this year are several external factors:

• Regional Weakness: Unlike in 2025, most of the rupee's Asian peers are also experiencing weakness, removing a potential source of relative stability.

• Trade Deal Stalemate: A lack of progress on a trade agreement with the United States has deprived the rupee of a potential catalyst for inflows.

With multiple pressures mounting, investors are now closely watching for U.S. President Trump's upcoming speech in Davos for further direction.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

UK CPI inflation rose from 3.2% y/y in November to 3.4% in December, beating expectations for 3.3%.

The beat on expectations should, all else equal, be supportive of the pound as it lowers the odds of a second interest rate cut at the Bank of England this year.

The rise was driven by a 0.4% m/m increase in prices, up from -0.2% in November.

Core CPI was unchanged at 3.2% y/y, which was slightly softer than the 3.3% expected.

Services inflation, which is closely watched by the Bank of England, rose to 4.5% from 4.4%, even if this was slightly lower than expectations.

These data mean the Bank will be cautious in considering future interest rate cuts, even as job losses start to mount.

The GBP/EUR exchange rate - which has been under pressure over recent hours owing to a deterioration in market sentiment - rose to 1.1490 from 1.1460.

The GBP/USD was relatively unchanged at 1.3435.

Sterling's sanguine market reaction tells us there's nothing in the data to materially alter the Bank of England's interest rate path: There is enough concern about the jobs market to get another cut across the line by April.

However, inflation is still looking stubborn at these above-target levels. The split on the Bank's Monetary Policy Committee isn't likely to close, and this will ensure there's enough debate for the Bank to remain cautious.

"Core CPI broke a run of three consecutive months of MoM misses to the downside. A further miss could have made for an interesting MPC meeting on 5th Feb - but as it stands the market looks about right in pricing just a 5% chance of a 25bp cut," says economist Simon French at Panmure Liberum.

However, Kallum Pickering, economist at Peel Hunt, says "don’t sweat the UK inflation uptick, it won’t last."

He explains the December jump in the headline number was driven by erratic components such as tobacco duty and airfares.

"Importantly, measures of underlying price pressures offered comfort against the headline jump. Growth in core prices, which exclude energy, food, alcohol and tobacco, remained stable," he says.

Image courtesy of Peel Hunt. It shows that on an annualised basis, inflation is back to target.

On balance, the tick higher in prices should ensure UK bond yields remain supported, which can support the pound.

From a near-term perspective, however, the currency market will take its cues from geopolitics and headlines out of Davos concerning the EU-U.S. confrontation over Greenland.

Source: Poundsterlinglive

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Frederick Miles

Political

Economic

Remarks of Officials

Germany's economy could see 1% growth in 2026, but only if it can avoid a new round of U.S. tariffs, the BDI industry association warned on Wednesday. The group stressed that despite the potential for growth, the outlook for the country's crucial industrial sector remains fragile.

Amid rising global uncertainty, the BDI urged the German government to center its policy agenda on improving competitiveness, stimulating growth, and creating jobs. The looming threat of fresh U.S. tariffs adds significant pressure to export-driven European economies like Germany's.

BDI President Peter Leibinger stated that Europe must meet these tariff threats with a united and confident response. He argued that only a competitive and resilient European Union can negotiate from a position of strength.

Industrial Sector Lags Broader Economy

The BDI projects that Germany's industrial sector will likely expand at a slower pace than the overall economy this year, highlighting a key vulnerability.

"Only if we now give top priority to strengthening competitiveness and growth can we stop the downward trend in industrial production," Leibinger said.

To reverse this trend, the BDI outlined a series of reforms designed to invigorate the industrial base.

A Call for Pro-Growth Reforms

The association is advocating for measurable policy changes to unlock economic potential. Key proposals include:

• Cutting Bureaucracy: The BDI has already submitted 253 specific proposals to reduce red tape for businesses.

• Accelerating Permits: Speeding up the approval process for major industrial projects is seen as critical.

• Flexible Labor: The group called for allowing more flexible working-time models to adapt to modern economic demands.

Additionally, Leibinger suggested that bringing forward a planned cut in corporate tax could provide a direct growth impulse as early as 2026.

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Gerik

Economic

Political

China’s Criticism And Strategic Framing

Beijing intensified its criticism of the trade agreement reached last week between the United States and Taiwan, warning that the pact would drain Taiwan’s economic strength for the benefit of Washington. Peng Qingen, a spokesperson for China’s Taiwan Affairs Office, said the agreement would “only drain Taiwan’s economic interests,” accusing Taiwan’s ruling Democratic Progressive Party of allowing the United States to hollow out the island’s key industries. This framing reflects Beijing’s broader position that economic cooperation between Taiwan and countries maintaining diplomatic relations with China violates the one-China principle and undermines regional stability.

China considers Taiwan part of its territory, a stance repeatedly emphasized by Xi Jinping, who has described reunification with the mainland as a historical inevitability. Taiwan rejects these claims and continues to pursue closer economic and security ties with Washington, a dynamic that has become increasingly contentious as geopolitical rivalry between China and the United States deepens.

Structure Of The Trade Deal And Economic Trade-Offs

Under the agreement, U.S. tariffs on most Taiwanese exports were reduced to 15 percent from 20 percent, while tariffs were waived on generic drugs and ingredients, aircraft components, and certain natural resources not available domestically in the U.S. In exchange, Taipei committed to significant investment flows into the American economy. Taiwanese firms are set to invest around $250 billion directly in the United States to build and expand technology operations, including semiconductor and artificial intelligence facilities. The Taiwanese government also pledged to guarantee an additional $250 billion in credit to support its chip and technology companies as they scale up production in the U.S.

Taiwanese chipmakers will also receive higher quotas for tariff-free chip exports to the United States, reinforcing supply chain integration. U.S. Commerce Secretary Howard Lutnick said the goal is to relocate about 40 percent of Taiwan’s semiconductor supply chain to the United States. This target highlights a strategic objective rather than an immediate outcome, as it depends on sustained investment, workforce development, and technological alignment over time.

Semiconductors At The Center Of The Dispute

At the heart of Beijing’s criticism lies Taiwan’s dominant position in global semiconductor manufacturing. Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, has already pledged $165 billion to build fabrication plants and a research and development facility in the United States. Reports suggest the company may construct four to six additional plants, potentially bringing the total number of U.S. facilities to more than ten.

China argues that such investments weaken Taiwan’s industrial foundations. Beijing has pointed to significantly higher labor costs at TSMC’s U.S. factories compared with those in Taiwan, implying that shifting production abroad could reduce efficiency and profitability. From China’s perspective, this supports its claim that Washington is “using Taiwan to contain China,” turning the island into a strategic asset rather than an independent economic actor.

Taiwan’s Response And Limits Of Industrial Migration

Taiwanese officials and experts have pushed back against the notion that the deal will hollow out the island’s economy. Analysts note that Taiwan continues to keep its most advanced semiconductor technologies at home, limiting the extent to which production relocation can undermine domestic capabilities. When asked about the U.S. ambition to achieve 40 percent chip self-sufficiency, Taiwan’s vice premier Cheng Li-chiun said the goal does not rest solely on Taiwan, emphasizing that U.S. chipmakers and other countries are also central to that strategy.

This highlights a relationship of correlation rather than direct causation between overseas investment and domestic industrial decline. While increased U.S. production may gradually diversify global supply chains, it does not automatically translate into an immediate loss of Taiwan’s technological edge, particularly as the island retains control over its most advanced processes.

Geopolitical Stakes And Economic Signaling

Taiwan’s central role in the global semiconductor supply chain gives the trade deal broader geopolitical significance. Nearly a third of global demand for new computing power is estimated to be met by Taiwan, making its de facto autonomy a strategic priority for the United States and its allies. The agreement therefore serves both economic and security objectives, deepening U.S.–Taiwan ties at a time when China has stepped up military and political pressure on the island.

From Beijing’s standpoint, the pact signals a tightening alignment between Washington and Taipei that threatens China’s regional influence. From Washington’s perspective, it represents a step toward supply chain resilience and reduced dependence on a single geographic hub. The tension between these interpretations underscores why the deal has become a focal point for broader U.S.–China rivalry, extending well beyond trade balances into questions of technology leadership, security, and long-term economic sovereignty.

Source: CNBC

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Isaac Bennett

Data Interpretation

Political

Russia-Ukraine Conflict

Remarks of Officials

Ukraine has appointed a new defence minister with a clear mandate: overhaul Europe's largest military with a data-driven strategy designed to give its forces a decisive edge against Russia's larger army. Mykhailo Fedorov, formerly the country's digitalisation minister, was appointed last week by President Volodymyr Zelenskiy to drive innovation and fortify Ukraine's defenses.

Fedorov's plan centers on rewarding battlefield results and implementing advanced technology to counter Russia's superior equipment.

Ukraine's new Defence Minister, Mykhailo Fedorov, is tasked with driving a data-centric overhaul of the nation's military.

A Mandate for Measurable Results

In his first remarks to reporters, Fedorov promised a sweeping reform of the defence ministry's management, emphasizing that performance will be the sole criterion for success. "If people don't demonstrate measurable results, they can't remain in the system," he stated.

His team has already compiled "high-quality data" to analyze ministry spending, identify potential savings, and address a significant budget gap. Fedorov stressed the importance of what he calls "the mathematics of war," underscoring that his approach will be built on systematic calculation and efficiency.

Boosting Battlefield Efficiency with Data

To translate this vision into action, the ministry will soon launch a mission control system for its drone operations. This platform will provide detailed data on the performance and effectiveness of drone crews, enabling better strategic decisions. A similar system is planned for artillery units.

"We need to see the full picture to simplify and speed up management decision-making," Fedorov explained. The ultimate goal is to increase Russian losses to an unsustainable level.

Leveraging Combat Data to Train Allied AI

Ukraine plans to establish a system that allows its allies to use its vast repository of combat data to train their military artificial intelligence models. Since Russia's full-scale invasion in February 2022, Ukraine has accumulated an invaluable trove of battlefield information, including:

• Systematically logged combat statistics

• Millions of hours of drone footage

This real-world data is critical for training AI to recognize patterns and predict outcomes. Fedorov has previously described this data collection as one of Ukraine's key negotiating assets. Ukraine is already using AI technology from the U.S. data analytics firm Palantir.

Fedorov also noted that his team is receiving strategic advice from prominent think tanks, including the Center for Strategic and International Studies (CSIS) and RAND in the United States, as well as the Royal United Services Institute (RUSI) in the UK, as he seeks to more actively integrate allies into defense projects.

Developing a Homegrown Mavic Drone Replacement

This month, Ukraine will begin testing a domestically produced replacement for China's widely used DJI Mavic drone, which serves as a primary reconnaissance tool for both sides of the conflict. The manufacturer's name was not disclosed.

This move addresses concerns about over-reliance on Chinese technology, especially given Beijing's close ties with Moscow. "We will have our own Mavic analogue: the same camera, but with a longer flight range," Fedorov confirmed.

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Gerik

Greenland Dispute Triggers Flight From U.S. Assets

Financial markets on Tuesday reflected a decisive shift away from U.S. risk as geopolitical uncertainty intensified around President Donald Trump’s renewed push to take control of Greenland. Investor anxiety rose after Greenland Prime Minister Jens-Frederik Nielsen warned that the possibility of U.S. military force had not been fully ruled out, even if it remained unlikely. This statement acted as a catalyst for market repricing rather than a standalone trigger, reinforcing an already fragile risk environment shaped by trade threats and diplomatic strain.

The immediate market response followed a familiar “sell America” pattern. U.S. equities sold off aggressively, bond yields climbed as prices fell, the dollar weakened, and capital rotated into traditional safe havens such as gold. These moves suggest a correlation between geopolitical uncertainty and capital allocation decisions, as investors reassessed U.S. political risk rather than reacting to any direct economic shock.

Wall Street Suffers Worst Session Since October

Major U.S. equity indices posted their sharpest losses in months. The S&P 500 fell 2.06 percent, the Dow Jones Industrial Average declined 1.76 percent, and the Nasdaq Composite slid 2.39 percent, pushing both the S&P 500 and Nasdaq into negative territory for 2026. Market volatility spiked during the session, with the VIX index briefly touching 20.99, underscoring the sudden deterioration in investor confidence.

Technology and growth stocks led the decline, with Netflix falling sharply even after posting a narrow earnings beat, while losses also spread across financials, industrials, and consumer-facing sectors. These broad-based declines point to systemic risk aversion rather than sector-specific concerns.

Gold Surges as Dollar And Treasuries Lose Appeal

As U.S. assets came under pressure, gold prices surged to fresh all-time highs, rising more than 2.2 percent on the day. The move marked gold’s strongest one-day gain since 2020, reinforcing its role as a hedge during periods of geopolitical stress. At the same time, the U.S. Dollar Index slipped, reflecting reduced demand for dollar-denominated assets amid growing uncertainty over U.S. foreign policy direction.

U.S. Treasury prices also fell, pushing yields higher, a sign that even traditional safe-haven bonds were not immune. One notable early signal came from Denmark, where pension fund AkademikerPension announced plans to sell roughly $100 million in U.S. Treasurys. While the fund cited concerns over U.S. government finances as the primary reason, its investment chief acknowledged that recent U.S.–Europe tensions made the decision easier to justify. This illustrates a reinforcing relationship where political risk amplifies existing structural concerns rather than acting as the sole cause.

Warnings Of Capital Conflict Gain Attention

Concerns about longer-term capital flows were amplified by comments from Ray Dalio, founder of Bridgewater Associates. Speaking at the World Economic Forum in Davos, Dalio warned that trade conflicts can evolve into capital conflicts, prompting foreign governments and investors to reassess their exposure to U.S. assets. His remarks framed the Greenland dispute as part of a broader pattern in which trade weaponization risks spilling over into global capital markets.

U.S. officials struck a more defiant tone. Treasury Secretary Scott Bessent defended the administration’s stance, describing it as an expression of renewed U.S. leadership. However, international reactions have been notably cooler, with European leaders and Greenland officials expressing alarm, and France’s Emmanuel Macron condemning what he described as bullying behavior while calling for the removal of U.S. tariffs on Europe.

Markets Question Who Benefits From Escalation

Despite mounting criticism, Trump signaled no intention to retreat, expressing confidence ahead of his departure for Davos that discussions on Greenland would “work out pretty well.” For markets, the unresolved question is not whether talks will continue, but whose interests will ultimately be served. In the near term, the evidence suggests that uncertainty itself is the dominant force driving asset prices, with investors choosing caution as long as geopolitical risks remain elevated.

While some Wall Street analysts argue that tensions could cool and that the sell-off may prove temporary, current price action reflects a market increasingly sensitive to political risk. The Greenland dispute has therefore become less about the island itself and more about what it signals regarding the future stability of U.S. trade relations, alliances, and capital flows.

Source: CNBC

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George Anderson

Data Interpretation

Central Bank

Economic

Remarks of Officials

UK inflation unexpectedly climbed for the first time since July, hitting 3.4% in December and complicating the path toward price stability. Despite the increase, investors and economists largely believe the upward blip won't derail the Bank of England's plan to cut interest rates later this year.

Official data shows the Consumer Price Index (CPI) rose from 3.2% in November, surpassing the 3.3% that economists had forecasted.

Key takeaways from the latest report include:

• Headline Inflation: Reached 3.4% in December.

• Primary Drivers: Price hikes were mainly caused by increased tobacco duties and seasonal airfare costs.

• Market Reaction: Financial markets remained steady, with expectations for 2026 rate cuts unchanged.

• Services Inflation: A crucial metric for the central bank, services price inflation edged up to 4.5% from 4.4%, aligning perfectly with forecasts.

Figure 1: UK inflation data shows the headline CPI rate rose in December 2025 but remains on a clear downward trajectory toward the Bank of England's 2% target.

What Drove the December Price Spike?

The primary forces behind the December inflation increase were higher prices for tobacco products, following a rise in duties, and the typical surge in airfares around the Christmas holiday period.

While the headline number was higher than expected, Adam Deasy, an economist at PwC, described the event as a "speed-bump, rather than an indication we are veering off course on the road to price stability."

This sentiment is shared across the market, as the underlying drivers are seen as temporary rather than a sign of persistent inflationary pressure.

Bank of England Stays the Course for 2026

Despite the uptick, the Bank of England (BoE) is widely expected to proceed with interest rate cuts in 2026. The central bank is focused on the broader trend, which still points toward a significant slowdown in price growth over the coming months.

BoE Governor Andrew Bailey has previously stated that he expects inflation to fall close to the bank's 2% target by April or May. Consequently, the latest data did little to move the pound or alter market bets on future monetary policy.

Figure 2: Bank of England Governor Andrew Bailey has voiced concerns over geopolitical risks but maintains that inflation should return to its target in the coming months.

"The Bank of England will... not be worried by these numbers," noted Nicholas Crittenden, an economist from the National Institute of Economic and Social Research. He added, "We still predict one cut in Bank Rate in the first half of this year."

Financial markets are currently pricing in one or possibly two quarter-point rate cuts by the BoE in 2026. This reflects confidence that the disinflationary trend will overcome short-term volatility.

Geopolitical Risks and Energy Prices Loom

While the domestic inflation picture appears manageable, external factors pose a significant risk. Governor Bailey recently highlighted that the BoE is worried about how markets are reacting to geopolitical developments.

These concerns are materializing in energy markets. British natural gas futures have surged by approximately 25% in the last two weeks, partly due to deteriorating relations with the United States, a key supplier of liquefied natural gas. The tensions stem from President Donald Trump's threats of tariffs on European allies who oppose his Greenland takeover plan. An escalation could disrupt supply chains and push energy costs higher, complicating the BoE's inflation fight.

The Broader Economic Outlook

Even with the December surprise, Britain's consumer price and services inflation rates are running slightly below the BoE's own projections from its November forecasts. However, the UK continues to have the highest inflation rate in the Group of Seven, paired with sluggish economic growth.

Data on producer prices, which can be a leading indicator for consumer inflation, showed a sharp increase in the services sector during the fourth quarter, rising to 2.9% from 2.0%. Meanwhile, output price inflation for manufacturers remained stable.

The BoE's Monetary Policy Committee last cut the Bank Rate to 3.75% in December, but the decision was not unanimous. Nearly half of its members voted to hold rates steady, citing concerns about persistent inflation, a signal that the debate over policy easing is far from over.

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