The Indian rupee fell to a new record low on Friday, owing to strong dollar demand in the non-deliverable forwards (NDF) market. According to Bloomberg, the rupee fell 0.6% to a new record low of 85.7437 per dollar, the worst single-day decline since February 2023. The local currency fell for the eleventh consecutive session, losing 3% against the US dollar this year. The rupee is expected to register annual losses for the seventh year in a row.

The dollar index, which measures the greenback's strength against a basket of six currencies, was trading slightly higher at 108.1 amid rising US Treasury rates, with 10-year Treasuries lingering around 4.50%. Other Asian currencies were down 0.1 to 1%.

The dollar has risen more than 2% this month and is on track for a third consecutive monthly increase, according to Reuters. The rupee has been under pressure due to broad dollar strength, fears over a rising trade deficit, and slowing domestic development.

"The pressure on the currency is anticipated to continue, owing to month-end dollar demand by local oil corporations. Thus, we predict the USDINR pair to trade between 85.00 and 85.50 in the short term," said Amit Pabari, Managing Director of CR Forex.

According to the most recent RBI bulletin, the central bank continues to actively operate in the forex market in order to keep the currency stable. In October alone, the RBI bought $27.5 billion and sold $36.78 billion, for a net sale of $9.28 billion in the spot foreign exchange market.

"Despite such aggressive efforts, the rupee has depreciated from 84 to 85 levels in just two months, in stark contrast to the 14 months it took to fall from 83 to 84. This demonstrates the rupee's greater vulnerability to external forces than domestic influences," Pabari remarked.

Meanwhile, the Dollar Index has remained solid above 108 in the holiday-shortened week, boosted by better-than-expected Initial Jobless Claims data.