Dollar v/s Rupee

Dollar has fallen down from its Rs.41.05 level to Rs. 39.75 against Rupee. But it is not the only case with dollar and rupee, dollar is weakened against every currency. What went wrong with dollar, why people are not interested in dollar any more? What went wrong with the demand of the dollar? Why people from various country are not bullish on world biggest country’s currency. This is called as game of demand and supply. Here people are afraid about the recession of the US economy. Economists and investors from various countries are estimating the 8th recession in the US. US have just faced the one of the biggest crash in Sub-prime market. Various mortgage back funds got smashed. Many of them declare their bankruptcy and remaining are searching for acquirer. To save them government of US played very smart and only available option with them they have cut the FED interest rate. And this is not the final cut they are also planning to repeat this step in day coming. There are mainly two reasons for depreciation of dollar with reduction in interest rate. First: Any currency value is directly proportional to the interest rate of that country because investors don’t want to invest their money for the lower risk free return (risk free rate get reduced with reduction in interest rate). Second reduction in interest rate may lead to inflationary issue, and inflation is indirectly proportional to the currency. In both the above case investors start selling their investment in the dollar, which leads to reduction in the value of the Dollar. That’s the reason Rupee is appreciating and the Dollar is depreciating against every currency.

Fig: Value of Dollar per Rupee