The Indian rupee closed sharply higher on Thursday, gaining 38 paise to settle at 85.71 against the US dollar, buoyed by a decline in the dollar index and easing geopolitical tensions that improved investor sentiment. The currency had closed at 86.09 in the previous session.

The dollar weakened after US President Donald Trump said he was considering bringing forward the appointment of the next Federal Reserve chair. The remarks sparked speculation that monetary policy could shift sooner than expected, putting pressure on the greenback. The US dollar index, which tracks the currency’s performance against six major global peers, slipped 0.55 per cent to 97.13.

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The rupee also drew strength from improved risk appetite after Trump declared that the conflict between Israel and Iran was “over,” though he cautioned that further escalation could not be ruled out. He added that the US would hold diplomatic talks with Iran next week, which supported hopes of regional stability.

Crude prices were mixed but remained relatively stable. Brent crude was trading at 67.71 US dollars per barrel, marginally higher by 0.04 per cent, while West Texas Intermediate (WTI) rose 0.17 per cent to 65.03 US dollars as of 3:35 PM IST. The stability in oil prices is a key positive for India, which imports more than 80 per cent of its crude needs.

Despite Thursday’s recovery, the rupee remains one of Asia’s weaker performers this month, having declined 0.15 per cent so far in June. Analysts note that persistent foreign fund outflows and global risk aversion continue to weigh on the currency.

However, in its monthly bulletin, the Reserve Bank of India said that domestic economic activity remains resilient despite global headwinds. It noted that financial conditions are conducive to the smooth transmission of recent policy rate cuts, which could help support growth and moderate currency volatility going forward.