India said it had struck nine Pakistani “terrorist infrastructure” sites, some of them linked to an attack by militants on tourists that killed 26 people in Indian Kashmir last month.
Pakistan said it had shot down five Indian fighter jets in the worst fighting in more than two decades between the nuclear-armed neighbors.
The Indian rupee closed lower by nearly 0.5% at 84.8250 against the U.S. dollar, marking its worst performance since April 9.
The rupee is likely to keep facing intermittent pressure depending on how the situation evolves, a trader at Singapore-based hedge fund said.
In the near-term, bullish bets on the currency could be scaled back while the Reserve Bank of India may step in to limit sharp swings, the trader said. During the day, the rupee’s losses were curbed on the back of dollar selling interest from a large conglomerate near the 84.90 level and on intermittent offers from state-run banks, a trader at a Mumbai-based bank said. Asian currencies were lower on the day, with the offshore Chinese yuan declining to 7.22 and the Indonesian rupiah down 0.5%.
“Risk appetite in part will have been curtailed following India’s decision to attack Pakistan close to the border with Kashmir … Pakistan has also retaliated, leaving the risk of conflict elevated,” MUFG Bank said in a note.
India’s benchmark equity indexes, the BSE Sensex and Nifty 50, swung between gains and losses before ending slightly in the green while the benchmark 10-year bond yield dipped to 6.3381%.
Investors await the Federal Reserve’s policy decision due later in the day. No changes to benchmark interest rates are expected.
